May a debtor propose a chapter 13 plan that provides for the payment of mortgage arrears with regular monthly payments followed by a balloon payment at the end of the plan?
So far, the answer is still no (although the issue is still working its way through the courts).
In the recent case of In re Carman out of the Massachusetts Bankruptcy Court in Worcester, the court found that a debtor could not propose a plan that paid the mortgagee interest only payments throughout the plan period, followed by a final balloon payment. “Such a modification is impermissible in that ‘once periodic payments to that creditor commence, a subsequent balloon payment would be unequal to those that preceded it.’”
Until we get word from the appeals courts, this issue will remain a potential road block for debtors who hope to fund their plan with a sale or refinancing (or other source of funds that they do not have access to now). When I say “road block”, I mean “road block to getting a chapter 13 plan confirmed.” And until this issue is resolved by the appeals courts, it should also be read to mean “a potential road block to keeping your house.”
In re Carman, 07-44271, US Bankruptcy Court, District of Massachusetts at Worcester, July 25, 2008
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