Brian Derek Carman

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Case 07-44271

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UNITED STATES BANKRUPTCY cour

DISTRICT OF MASSACHUSETTS

CHAPTER 13

IN RE
BRIAN DEREK CARMAN
DEBTOR CASE NO, 07-44271-JBR

ORDER ON CREDITORS’ OBJECTIONS TO CONFIRMATIO
CHAPTER 13 PLAN

FACTS

The Debtor filed an Amended Chapter 13 Plan (“Plan”) (Docke|
modify the terms of the mortgages on the Debtor’s rental property held
(“Creditors”). The Plan proposes to change the interest rates on the mq
make interest-only payments for the life of the Plan, and make a lump 4
the end of the Plan period to pay the remaining balance of the mortgags
Creditors filed Objections to Confirmation of the Plan (Docket #59, 92
made pursuant to the Plan would not be sufficient to satisfy the Credita
Plan, therefore, does not provide adequate protection of their interests.
DISCUSSION

1. Lump sum/balloon payments are impermissible modifications.

The Debtor’s proposal to make a lump sum/balloon payment at
is an impermissible modification of the mortgages in question. Althoul
Code neither makes provisions for nor precludes the use of balloon pay

cases,” Matter of McClaflin, 13 B.R. 530, 533 (Bkrtcy.N.D-Ill. 1981), ¢

AUTHENTICATED
U.S. GOVERNMENT
INFORMATION

GPO

N OF THE DEBTOR’S

t #40) which proposes to
by GMAC and PHH
rtgages from 9% to 6%,
um/balloon payment at
t. In response, the

), arguing that payments

rs’ claims and that the

the end of the Plan period
ph “[t]he Bankruptcy
ments in Chapter 13

Pollier on Bankruptcy

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suggests that it is the single lump sum payment arrangement that may le permissible under the

requirement of 11 U.S.C. Section 1325(a)(S5)(A)(iii)(1) that periodic payments “be in equal
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monthly amounts.” Jn re Lemieux, 347 B.R. 460 (Bankr. D. Mass. 2006). In the case at hand,
the Debtor proposes to make equal 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 wauld be unequal to those

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that preceded it. Jd.

2. Interest Rate Modifications may be permissible if the proposed rate is reasonable and fair.
The Debtor’s proposed interest-rate modifications may be permissible pursuant to 11
U.S.C. Section 1322(b)(2), which permits modifications to creditors’ rights unless a claim is
secured only by a security interest in the debtor’s principal residence. Section 1322(b)(2) states
that a plan may modify the terms of a mortgage “other than a claim seoured only by a security
interest in real property that is the debtor’s principal residence....” Sinke the mortgages in
question are not held on the Debtor’s principal residence, the proposed interest-rate
modifications should not be denied automatically. In re Groff, 131 BR. 703, 707-08 (Bankr.
E.D. Wis. 1991). Rather, a modification may be permissible where the proposed interest rate is
“reasonable and fair” in that the “the claim will be paid out in full over|the life of the Plan with
the interest provided.” Jn re Wilson, 144 B.R. 318, 319-20 (Bankr. Wil . Va. 1992). To
determine the validity of the Creditors’ assertion that the Plan does not satisfy the claims in full,
an inquiry should be made as to whether the proposed interest rate is cgmparable to the going
market rate in the area. /d.

CONCLUSION

The Court hereby sustains the Creditors’ objections and denies confirmation of the

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Debtor’s Plan as it finds that lump sum/balloon payments are an imperinissible loan
modifications. As the Debtor’s Plan is not confirmable, the Court need not rule on the
reasonableness and fairness of the interest rate modifications. The Debtor shall file an amended

plan within 30 days of the date of this Order.

Dated: July 25, 2008 By the Court,

el B. Rosenthal
United States Bankruptcy Judge