Christopher J. Melillo and Lisa M. Melillo

The Motion for Clarification essentially requests reconsideration of the denial of1
confirmation on the basis that there was no apparent violation of 11 U.S.C. §
1325(a)(5)(B)(iii)(I). I will therefore treat this pleading as a motion for reconsideration.
1
UNITED STATES BANKRUPTCY COURT
DISTRICT OF MASSACHUSETTS
EASTERN DIVISION
____________________________________
IN RE:
CHRISTOPHER J. MELILLO AND Chapter 13
LISA M. MELILLO, Case No. 07-10238-WCH
DEBTORS
____________________________________
IN RE:
DENNIS J. FLYNN AND Chapter 13
ADELE HARATSIS FLYNN, Case No. 07-15470-WCH
DEBTORS
____________________________________
MEMORANDUM OF DECISION
I. INTRODUCTION
The matters before the Court are Christopher J. and Lisa M. Melillos’ (the “Melillos”)
Motion for Reconsideration of Court’s Order Dated February 12, 2008 (the “Motion for
Reconsideration”) and Dennis J. and Adele Haratsis Flynns’ (the “Flynns”) (collectively with the
Melillos, the “Debtors”) Motion for Clarification and Extension of Time to Comply with Court’s
Order Dated February 13, 2008 (the “Motion for Clarification”). In both cases, the Debtors seek
reconsideration of the Court’s orders denying of confirmation of their respective Chapter 13 plans
for failure to comply with the provisions of 11 U.S.C. § 1325(a)(5)(B)(iii)(I) based upon proposed
balloon payments. For the reasons set forth below, I will enter an orders denying reconsideration.1
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The Motion for Reconsideration does not indicate who the Melillos believe is the only2
secured creditor effected by 11 U.S.C. § 1325(a)(5)(B)(iii)(I).
2
II. BACKGROUND
The Melillos
The Melillos filed their Chapter 13 petition on January 16, 2007. On June 27, 2007, they
filed their First Amended Chapter 13 Plan (the “Melillos’ Plan”). The Melillos’ Plan provided for
graduated payments as follows:
12 months @ $ 500.00 = $ 6,000.00
12 months @ $ 1,000.00 = $ 12,000.00
35 months @ $ 1,500.00 = $ 52,500.00
1 month @ $104,625.00 = $122,517.00
$193,017.00
The Melillos intended to fund the final balloon payment from either the sale or refinance of
their principal residence or their Florida rental property. The Melillos’ Plan proposed to cure
$127,215.20 of arrears on five loans: an auto loan owed to United Auto Credit - Boston and four
mortgages owed to Washington Mutual, Countrywide Home Loans, Old Centre Ventures, Inc., and
the Sandy Bee Trust, respectively. Only the arrears on these secured claims would be paid through
the plan, while the Melillos would maintain post-petition payments outside the plan.
On February 12, 2008, I entered an order denying confirmation of the Melillos’ Plan on the
basis that the proposed graduated payment scheme with a final balloon payment did not comply with
the provisions of 11 U.S.C. § 1325(a)(5)(B)(iii)(I). On February 20, 2008, the Melillos filed the
Motion for Reconsideration asserting that 11 U.S.C. § 1325(a)(5)(B)(iii)(I) can be read as effecting
only one secured creditor, and as no objections have been filed, that creditor has assented to this
treatment. On February 28, 2008, I took the matter under advisement.2
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I note that Attorney Laurel E. Bretta is the counsel of record for both the Melillos and3
the Flynns.
In re Davis, 343 B.R. 326, 328 (Bankr. M.D. Fla. 2006).4
3
The Flynns
The Flynns filed their Chapter 13 petition on August 30, 2007. On December 17, 2007, the
Flynns filed their First Amended Chapter 13 Plan (the “Flynns’ Plan”). The Flynns’ Plan provides
for fifty-nine payments of $550.00 per month and one payment of $37,716.00. The Flynns’ Plan
contemplates that the lump sum payment will be funded by the Flynns borrowing against their
retirement accounts. In their plan, the Flynns propose to pay $34,376.91 to Deutsche Bank National
Trust Co. for pre-petition arrears and fees associated with their first mortgage, as well as $4,296.70
to the Town of Holliston for real estate taxes and water and sewer fees.
On February 13, 2008, I denied confirmation of the Flynns’ Plan as the final month balloon
payment violated the provisions of 11 U.S.C. § 1325(a)(5)(B)(iii)(I). On February 20, 2008, the
Flynns filed the Motion for Clarification seeking clarification of my February 13, 2008 order on the
basis that no debt secured by personal or real property was effected by the Flynns’ Plan beyond the
curing of arrears on a long-term debt. As the Motion for Clarification raised similar issues as the
Melillos’ Motion for Reconsideration, I took it under advisement on February 28, 2008.
III. POSITIONS OF THE PARTIES
In both cases, the Debtors raise essentially the same arguments in support of their respective
plans. In the Motion for Clarification, the Flynns cite In re Davis for the proposition that equal3 4
monthly payments are not required when the claim at issue is one in which arrears on a long term
debt are being cured pursuant to 11 U.S.C. § 1322(b)(5). Though not expressly stated by the Motion
for Reconsideration, the Melillos also appear to rely on Davis, as they suggest I read the provisions
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11 U.S.C. § 1325(a)(5)(B)(iii)(I).5
In re Erwin, 376 B.R. 897, 901 (Bankr. C.D. Ill. 2007).6
4
of 11 U.S.C. § 1325(a)(5)(B)(iii)(I) as effecting only one creditor, presumably the one creditor whose
loan will mature during the term of the plan. Additionally, the Debtors assert that no creditors have
filed objections to their respective plans based upon 11 U.S.C. § 1325(a)(5)(B)(iii)(I), and therefore
their silence can be deemed consent to such treatment.
IV. ANALYSIS
Section 1325(a) of the Bankruptcy Code sets forth the conditions under which a court shall
confirm a debtor’s chapter 13 plan. The conditions setting forth the treatment of secured claims are
described in 11 U.S.C. § 1325(a)(5). The Bankruptcy Abuse Prevention and Consumer Protection
Act of 2005 (“BAPCPA”) significantly amended the provisions of this subsection by adding
requirement that “if . . . property to be distributed pursuant to this subsection is in the form of
periodic payments, such payments shall be in equal monthly amounts[.]” This amendment was5
aimed at perceived abuses under the prior law. One court summarized them as such:
Prior to BAPCPA, it was not uncommon for some Chapter 13 plans to provide for
backloaded payments, such as balloon payments. Another form of backloading
involved graduated or step-up payment plans, where the payments started out smaller
and increased over time. Secured creditors, particularly those secured by a vehicle,
viewed this as unfair, exposing them to undue risk in light of the constant
depreciation of their collateral.
Other plans, filed by debtors whose employment is seasonal, provided for reduced
payments or no payments at all during certain months of the year, or called for
payments to be made quarterly or semi-annually, rather than monthly, based upon the
peculiarities of the debtor's income stream. Secured creditors had similar complaints
with those plans.6
Not unlike other amendments made by BAPCPA, this seemingly straightforward provision
has generated considerable splits among the relatively few bankruptcy courts that have addressed its
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See, e.g., In re Wallace, Nos. 07-10729, 2007 WL 3531551 (Bankr. M.D.N.C. Nov. 12,7
2007) (a plan that provides for a balloon payment to a secured creditor is not confirmable); In re
Luckett, No. 07-24706-SVK, 2007 WL 3125278 (Bankr. E.D. Wis. Oct. 24, 2007) (adequate
protection payments are property distributed to a secured creditor and must be in equal monthly
amounts); Erwin, 376 B.R. 897 (equal payment provision serves a restriction on how debtors
may propose payments and is not a directive the Chapter 13 trustee on how to make the
payments); In re Denton, 370 B.R. 441 (Bankr. S.D. Ga. 2007) (secured creditors must begin
receiving payments in equal monthly amounts beginning with the first payment after
confirmation); In re Newberry, No. 07-10170, 2007 WL 2029312 (Bankr. D. Vt. July 10, 2007)
(a combination of monthly payments and a balloon payment categorically violates the directive
for equal monthly payments); In re Schultz, 363 B.R. 902, 906 (Bankr. E.D. Wis. 2007) (holding
that “periodic payments must be equal, period.”); In re Blevins, No. 06-10978 A 13, 2006 WL
2724153 (Bankr. E.D. Cal. 2006); In re Lemieux, 347 B.R. 460 (Bankr. D. Mass. 2006) (debtor
curing a default on a debt which matures during the term of the plan must do so in equal monthly
payments); Davis, 343 B.R. 326 (holding 11 U.S.C. § 1325(a)(5(B)(iii)(I) is inapplicable when
curing arrears on a long term debt); In re Wagner, 342 B.R. 766 (Bankr. E.D. Tenn. 2006)
(debtor paying long term maintenance payments pursuant to 11 U.S.C. § 1322(b)(5) is still
subject to the equal monthly payment requirement); In re DeSardi, 340 B.R. 790 (Bankr. S.D.
Tex. 2006) (property distributed to secured creditors under Chapter 13 plan must be in equal
monthly amounts once they commence, but there is no requirement that such payments begin on
the effective date of the plan).
8 Collier on Bankruptcy ¶ 1325.06[3][b][ii][A] at 1325-37 (15th ed. rev. 2007).8
5
practical application. I, however, need not fully define the parameters of “equal monthly payments”7
at this time because the Debtors’ plans fail under any definition.
While avoiding a tortuous parsing of the statute, a few conclusions are apparent. First, I
understand 11 U.S.C. § 1325(a)(5)(B)(iii)(I) to require that a plan providing for periodic payments
to a secured creditor have payments in an equal amounts from the time they begin until the time they
cease. Second, it is logical and consistent with other provisions of the Bankruptcy Code to conclude
that payments to a secured creditor need only continue until the claim is satisfied and not for the full
life of the plan. Although Collier on Bankruptcy suggests that a single lump sum payment is not
precluded by 11 U.S.C. § 1325(a)(5)(B)(iii)(I), it seems apparent that once periodic payments to that8
creditor commence, a subsequent balloon payment would be unequal to those that preceded it. The
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Wallace, 2007 WL 3531551 *1; Luckett, 2007 WL 3125278 *2; Newberry, 2007 WL9
2029312 *3; Schultz, 363 B.R. at 906; Lemieux, 347 B.R. at 464; Wagner, 342 B.R. at 772.
Section 1325(b) provides in relevant part:10
(b) Subject to subsections (a) and (c) of this section, the plan may--
* * *
(5) notwithstanding paragraph (2) of this subsection, provide for
the curing of any default within a reasonable time and maintenance
of payments while the case is pending on any unsecured claim or
secured claim on which the last payment is due after the date on
which the final payment under the plan is due. . . .
Davis, 343 B.R. at 327.11
Id. at 328.12
Rake v. Wade, 508 U.S. 464 (1993).13
Davis, 343 B.R. at 328.14
6
majority of bankruptcy courts that have addressed this issue have reached the same conclusion.9
The Davis court, however, did not reach the same conclusion when addressing whether plan
payments solely to cure a default on a long term debt under 11 U.S.C. § 1322(b)(5) were subject10
to the “equal monthly payments” requirement. In Davis, the court analyzed the interplay between11
11 U.S.C. §§ 1322(b)(5) and 1325(a)(5) by examining the historical interaction of 11 U.S.C. §§
1322(b) and 1325(a)(5). It observed that the enactment of 11 U.S.C. § 1322(e) technically12
overruled the Supreme Court of the United States’s decision in Rake v. Wade, which held that13
oversecured creditors whose claims were modified by 11 U.S.C. § 1322(b) were entitled to pre- and
post-confirmation interest on arrears paid through the plan even when the underlying contract and
state law did not so provide. The Davis court concluded that 11 U.S.C. § 1322(e) has the effect14
of overriding 11 U.S.C. § 1325(a)(5) when arrears on a long term debt are cured under 11 U.S.C. §
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Id.15
11 U.S.C. § 1322(e) (emphasis added).16
See Id.17
See 11 U.S.C. § 1325(a)(5)(B)(iii)(I).18
Davis, 343 B.R. at 328.19
7
1322(b)(5), and therefore, that the equal monthly payment provision of 11 U.S.C. §
1325(a)(5)(B)(iii)(I) is inapplicable to the payment of arrears on a long term debt. I disagree.15
Section 1322(e) states that:
Notwithstanding subsection (b)(2) of this section and sections 506(b) and 1325(a)(5)
of this title, if it is proposed in a plan to cure a default, the amount necessary to cure
the default, shall be determined in accordance with the underlying agreement and
applicable nonbankruptcy law.16
While 11 U.S.C. § 1322(e) supercedes 11 U.S.C. § 1325(a)(5)(B)(ii) with respect to the amount
necessary to cure the default, there is nothing in that provision to suggest that it renders 11 U.S.C.
§ 1325(a)(5) completely inapplicable when arrears on a long term debt are cured through the plan.
Section 1322(e) refers only to the “amount necessary to cure the default,” and not the manner in
which it is cured. Section 1325(a)(5)(B)(iii)(I), however, provides that if property is to be17
distributed to the holder of an allowed secured claim in periodic payments, the payments must be
in equal monthly amounts. It does not speak to the total “amount necessary to cure the default.”18
As 11 U.S.C. § 1325(a)(5)(B)(iii)(I) was enacted in 2005, eleven years after 11 U.S.C. § 1322(e),
Congress could easily have drafted the clause to be expressly inapplicable in curing arrears on a long
term debt if it had so intended. Moreover, Davis cites no authority to support such a blanket
override. I also note that no other court has extended Davis’ reasoning while four others have19
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See Wallace, 2007 WL 3531551; Schultz, 363 B.R. 902; Blevins, 2006 WL 2724153;20
Lemieux, 347 B.R. 460.
Schultz, 363 B.R. at 906.21
I note that 11 U.S.C. § 1325(a)(5)(B)(iii)(I) applies to payments made to secured22
creditors and not plan payments. The Summary of Disbursements to be Made Under the Plan
(the “Summary”) attached to the Chapter 13 trustee’s Proposed Confirmation Order for the
Melillos’ Plan indicate total monthly disbursements to their secured creditors in an amount which
greatly exceeds the Melillos’ plan payment. The Summary attached to the Chapter 13 trustee’s
Proposed Confirmation Order for the Flynns’ Plan does not indicate a monthly disbursement, but
merely states the total amounts will be paid over the sixty-month term. As was the case with the
Melillos’ Plan, dividing the total secured claims by sixty yields a disbursement which exceeds
the Flynns’ plan payment. Additionally, the balloon payment in each case exceeds the amount of
secured claims to be paid under their respective plans. As such, it is clear that it is
mathematically impossible for the payments to the secured creditors to be in equal monthly
8
either rejected or distinguished it.20
Reliance on 11 U.S.C. § 1322(b)(5) is also misplaced for similar reasons. Section 1322(b)(5)
is a discretionary provision with respect to the contents of a plan and merely states that a plan may
provide for the curing of any default within a reasonable time and the maintenance of payments for
a debt for which the last payment is due after the term of the plan. In contrast, 11 U.S.C. § 1325(a)
is a mandatory provision with respect to confirmation and uses the phrase “shall confirm,” indicating
that plans will only be confirmed if they comport to the requirements laid out in that section. Section
1325(a)(5)(B)(iii)(I) does not preclude the curing of a default within a reasonable time or the
maintenance of payments on a long term debt as it only controls the manner in which payments are
made. Ultimately, “[s]ection 1322(b)(5) just means that the entire secured claim need not be paid
in full under certain circumstances allowing cure of default, but the claim is still an allowed secured
claim.”21
In the present cases, the Debtors’ proposed backloaded balloon payments are clearly unequal
to the periodic payments that would precede them. It is irrelevant that the Debtors seek only to cure22
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amounts with balloon payments of this magnitude.
Section 1325(a)(5)(A) provides that “the court shall confirm a plan if . . . with respect23
to each allowed secured claim provided for by the plan . . . the holder of such claim has accepted
the plan . . . .”
In re Bethoney, No. 07-13609-WCH, 2008 WL 179509 *6 (Bankr. D. Mass. Jan. 17,24
2008).
Id.25
The issue of whether a creditor can affirmatively consent to treatment that is prohibited26
by the express provisions of the of 11 U.S.C. § 1325(a)(5)(B)(iii)(I) is beyond the scope of this
opinion.
9
their arrears through their respective plans, as the payments remain periodic payments made to
secured creditors. The Bankruptcy Code simply does not provide an exception for this type of claim
to be treated in this manner. As such, both plans violate the provisions of 11 U.S.C. §
1325(a)(5)(B)(iii)(I).
In the alternative, the Debtors’ assert that I may construe their secured creditors’ lack of
objection as consent, and therefore find the proposed treatments confirmable under 11 U.S.C. §
1325(a)(5)(A). As I recently stated in In re Bethoney, “even in the absence of objection by a23
creditor, the court has an affirmative duty to review [a Chapter 13 plan] and ensure its provisions
comply with the provisions of the Bankruptcy Code.” I held that I cannot infer a secured creditor’s24
consent to treatment which is expressly prohibited by the Bankruptcy Code from a lack of an
objection because “it has a reasonable expectation that I will not approve treatment which violates
the Bankruptcy Code.” Here, graduated payments and backloaded balloon payments in plans are25
exactly the proposed treatment Congress sought to prohibit. Accordingly, I cannot confirm either
the Melillos’ Plan or the Flynns’ Plan.26
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The Motion for Clarification will be granted in part to the extent that this memorandum27
provides clarification of my prior order.
10
V. CONCLUSION
In light of the foregoing, I will enter orders denying the Motion for Reconsideration and
granting in part the Motion for Clarification, and order the Debtors to file amended Chapter 1327
plans within two weeks.
______________________________
William Hillman
United States Bankruptcy Judge
Dated: April 8, 2008
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