Jose Luis Acosta and Venedita Acosta

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
1
UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re
JOSE and VENEDITA ACOSTA, 	No. 08-11411
Debtor(s).
______________________________________/
Memorandum on Motion for Reconsideration
_________________
Secured creditor GMAC Mortgage, LLC, holds a first deed of trust on the debtors’ real
property at 2501 McMillan Street, Napa, California. Debtors Jose and Venedita Acosta have proposed
a Chapter 13 plan which provides:
Debtors shall make adequate protection payments, to the Trustee, in the sum of
$1,874.41. Principal shall be paid in one installment upon Debtors’ refinance or sale
of the Real Property. Such refinance or sale shall occur between 48 and 60 months
of the effective date of the Plan and, at such time, the adequate protection payments
shall cease and Debtors’ monthly Chapter 13 Plan payment shall decease
accordingly.
The property is rental or investment property, not the debtors’ residence, so that the anti-
modification provisions of § 1322(b)(2) of the Bankruptcy Code do not apply. GMAC originally
argued that the form of modification the debtors propose is not permissible, relying on In re Enewally,
368 F.3d 1165, 1171 (9th Cir. 2004), which holds that when a secured creditor’s rights are being
modified by a Chapter 13 plan the modified payments cannot extend beyond the 60-month maximum
life of a Chapter 13 plan. 	The court found that the debtors had avoided the effect of Enewally because
Entered on Docket
July 02, 2009
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 08-11411 Doc# 66 Filed: 07/02/09 Entered: 07/02/09 14:50:34 Page 1 of 4

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
1The district court in In re Rivera, 2008 WL 1957896 (N.D.Ill.2008), has reached the same
conclusion.
2
GMAC is to be paid in full within 60 months. However, in avoiding Enewally the debtors ran into
another problem: by proposing a balloon payment at the end, their plan violated the “equal payments”
provision of §1325(a)(5)(B)(iii)(I) added by Congress in 2005. 	Finding confirmation barred by this
section, the court sustained GMAC’s objection. The debtors have now moved for reconsideration.
Section 1325(a)(5)(B)(iii)(I) provides that if the plan calls for payments to a secured creditor,
those payments shall be in equal monthly amounts. This provision eliminates the sort of plan the
debtors have proposed with “adequate protection” payments for a few years and a balloon payment at
the end. 	As the court noted in rejecting this sort of plan in In re Hamilton, 401 B.R. 539, 543 (1st Cir.
BAP 2009):
Overwhelmingly, courts have held that by its very terms, a balloon payment is not
equal to the payment that preceded it, and thus violates § 1325(a)(5)(B)(iii)(I) with
respect to periodic payments on a secured claim under a chapter 13 plan. See In re
Carman, 2008 WL 2909863, at *1 (Bankr.D.Mass. July 25, 2008); In re Wallace,
2007 WL 3531551 (Bankr.M.D.N.C. Nov. 12, 2007); In re Luckett, 2007 WL
3125278, at *2; In re Newberry, 2007 WL 2029312, at *3-4 (Bankr.D.Vt. July 10,
2007); In re Lemieux, 347 B.R. 460, 463 (Bankr.D.Mass.2006); In re Wagner, 342
B.R. 766, 772 (Bankr.E.D.Tenn.2006); In re DeSardi, 340 B.R. 790, 805
(Bankr.S.D.Tex.2006); see also William J. McLeod, Trick or Treat: A (Not-So)-Scary
Look at Equal Monthly Payments Under § 1325(a)(5), 24-Oct. Am. Bankr.Inst. J. 14
(2008); but see In re Davis, 343 B.R. 326, 328 (Bankr.M.D.Fla.2006). Here, the
Debtor's plan provides for a balloon payment at or near completion of the plan. By its
very terms, the balloon payment is not equal to the preceding payments and therefore
it is prohibited by § 1325(a)(5)(B)(iii)(I).
The court elected to follow Hamilton, which at the time was the only reported appellate case on the
issue. 1 The debtors now seek reconsideration, relying on two bankruptcy court decisions, In re Hill,
397 B.R. 259 (Bkrtcy. M.D.N.C. 2007), and In re DeSardi, 340 B.R. 790 (Bkrtcy. S.D. Tex. 2006).
However, neither of these cases dealt with a balloon payment due four years after confirmation. Both
cases merely held that §1325(a)(5)(B)(iii)(I) is not violated merely because a few “adequate
protection” payments were made before regular monthly payments stretching out for a period of years
began. To the extent not distinguishable, the court does not find them persuasive.
Case: 08-11411 Doc# 66 Filed: 07/02/09 Entered: 07/02/09 14:50:34 Page 2 of 4

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
2The court in Hamilton did not buy this argument either, noting that “The Debtor’s argument is
an invitation to the Panel to elevate form over substance by allowing the Debtor to sidestep statutory
requirements by attaching a label to his plan payments other than the one that actually applies.” 401
B.R. at 543.
3In argument, debtor’s counsel noted that the right to dismiss is less absolute than it used to be
in light of In re Rosson, 545 F.3d 764 (9th Cir. 2008). Significantly, he did not argue that his clients’
request for dismissal would be bad faith. The court is under no illusion that the debtors would actually
perform their plan if it were to be confirmed.
3
The debtors’ plan calls for monthly interest-only payments for four or five years, with a
balloon at the end. Their argument is that the interest payments are “adequate protection payments”
and not “periodic payments.” The court declines their invitation to engage in this sophistry;
payments are payments.2
Nor is the court swayed by the debtors’ appeal to ignore the intent of Congress in the light of
current economic conditions. It is up to Congress to change the law, if it so wills. The road to
judicial hell is certainly paved with well-intentioned disregard for the law.
Since the debtors have asked for reconsideration, it may be appropriate to consider balloon
payment plans in general and the reason Congress added § 1325(a)(5)(B)(iii)(I). In all but very rare
instances, such plans are both illusory and speculative.
Before 2005, the court over the years confirmed hundreds, or maybe even thousands, of
balloon payment Chapter 13 plans. The court doubts that even a dozen of these cases was actually
performed. Debtors retained the absolute right to dismiss, and always exercised the right when a
creditor or the Chapter 13 trustee demanded performance.3 In some cases, the debtors did refinance
outside Chapter 13 so that at least the secured creditor was paid. In many cases, the promise to sell or
refinance was conveniently forgotten. In the worst cases, tolerated in far too many jurisdictions, the
debtors merely filed new Chapter 13 cases and asked for another four or five illusory years. This
abuse was undoubtedly one of the reasons Congress enacted § 1325(a)(5)(B)(iii)(I).
Moreover, there is simply no way that a debtor can show that a sale or refinance which cannot
Case: 08-11411 Doc# 66 Filed: 07/02/09 Entered: 07/02/09 14:50:34 Page 3 of 4

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
4The debtors ask for leave to file an amended plan, which is not necessary. The court has only
sustained an objection to confirmation. The debtors have the right to propose a different plan pursuant
to § 1307(c)(5), since the court has not ordered the case dismissed.
4
be done today will be feasible in four or five years. Before the real estate market crashed, the debtors
attempted to show feasibility by arguing that real estate prices always rise. Now that they have
fallen, debtors argue that the market is low so it is bound to rise. 	Past performance is no guarantee of
future results. 	There is no way the court can make the finding, required by § 1325(a)(6), that the
debtors will be able to comply with the plan based on these specious arguments. In the face of
objection, the court would not confirm this plan even if § 1325(a)(5)(B)(iii)(I) did not exist.
For the foregoing reasons, the request for reconsideration will be denied. Counsel for GMAC
shall submit an appropriate form of order.4
Dated: July 2, 2009
SAlan Jaroslovsky
U.S. Bankruptcy Judge
Case: 08-11411 Doc# 66 Filed: 07/02/09 Entered: 07/02/09 14:50:34 Page 4 of 4