Court Applied Chapter 11 Principle to Deny Chapter 13 Debtor a Second Chance to Cure Balloon Mortgage

Court Applied Chapter 11 Principle to Deny Chapter 13 Debtor a Second Chance to Cure Balloon Mortgage

The Debtor in this Chapter 13 case tried, but failed, to completely pay off a balloon mortgage on her home in a prior Chapter 13 case, filed in 2013. She bound herself to pay the arrears under that Plan, and to pay the balloon by any of various means. None of those materialized. She now seeks to take a new approach toward that mortgage debt and argues that this Court may confirm a new Plan over the vigorous objection of the mortgagee who seems to be an “average guy” who took back a five-year mortgage with a balloon when he sold the house to the Debtor. (It had been his family home; he inherited it from his parents.) In the previous Chapter 13 case the Debtor left the then $60,000 balloon payment in place (it was due to be paid outside of the Plan in May of 2017) but she utilized 11 U.S.C. §1322(c)(2) to cure the pre-petition mortgage defaults. She planned to be able to pay the balloon payment through refinancing, or borrowing on her husband’s retirement account, or collecting on an unliquidated personal injury cause of action, or by the sale of the home. May, 2017, came and went without any of those things occurring, and so the mortgagee (Mr. Borsick) sought and obtained lift of stay. In an effort to obtain reconsideration of that ruling, the Debtor proposed a modification to the 2013 Plan hoping to get another year to find a way to satisfy the balloon payment. The mortgagee argued through counsel that the modification was not permissible under 11 U.S.C. §1329 because (1) the plan payments had been completed (11 U.S.C. §1329(a) permits a modification only “before the completion of payments under such plan”)1 and because (2) 11 U.S.C. §1325(a)(5)(B)(iii)(I) requires that secured claims provided for in the plan be paid “in equal monthly amounts”, rather than a single payment, and thus payment of the balloon in that manner would extend payment to the mortgagee several years past the five year limitation. (11 U.S.C. §1329(c) states that “the Court may not approve a [modified] period that expires after five years after” the time that the first payment under the original confirmed plan was due). He made other arguments as well.

The Court rejected the Motion for Reconsideration and so the Debtor filed another petition. Now she proposes to retire what has become an approximately $66,000 balloon payment in equal monthly installments ending on the fifth anniversary of when the balloon was originally due. The mortgagee has strenuously objected.

Although this seems to be a matter of first impression, given that the parties have been unable to cite the Court to any decision directly on point (nor has the Court found one), the Court is satisfied that there is a substantial body of case law, originally developed under Chapter 11, that must be extended to cases in Chapter 13.

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