2009 Consumer Law Recent Developments (Part II)

By Hon. William Houston Brown

Balloon payment of long term mortgage is not equal monthly amount. Citing other cases in agreement, the BAP holds 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." The debtor's plan proposed to make a balloon payment to satisfy the mortgage on nonresidential real estate near completion of the plan. The BAP also rejected the argument that prohibiting such payment nullifies § 1322(b)(2), which permits modification of mortgages other than on the debtor's principal residence (this mortgage was not protected by the anti-modification provision), with the BAP disagreeing with In re Davis, 343 B.R. 326 (Bankr. M.D. Fla. 2006): "[T]he idea that § 1322(b)(2) or (b)(5) is at odds with § 1325(a)(5)(B)(iii)(I) is simply wrong." Hamilton v. Wells Fargo Bank, N.A. (In re Hamilton), ___ B.R. ___, 2009 WL 566323 (B.A.P. 1st Cir. Mar. 6, 2009). Accord, Flynn v. Bankowski (In re Flynn), ___ B.R. ___, 2009 WL 566438 (B.A.P. 1st Cir. Mar. 6, 2009), where the BAP also noted that the Code and Rules contain no mechanism for a creditor's acceptance of a plan. While silence of a creditor that receives proper notice of a plan may constitute "implied" acceptance, such "implied consent requires, however, that the secured claim holder has received both proper and adequate notice and proper and adequate service. Proper and adequate notice is a highly factual inquiry and necessarily depends on the language in the plan and the context of the case." The record here did not permit the BAP to determine if notice and service were proper and adequate to imply acceptance.

Equal monthly payments need not begin with first plan payment. Reviewing two lines of authority, the court concludes that the position of In re DeSardi, 340

B.R. 790 (Bankr. S.D. Tex. 2006), is correct, that § 1325(a)(5)(B)(iii)(I) requires "payments to be equal once they begin, and to continue to be equal until they cease." This plan was not confirmed, however, because of lack of feasibility. In re Butler, ___ B.R. ___, 2009 WL 674010 (Bankr. W.D. Ark. Mar. 17, 2009).

Debtor may not deduct payments on junior, wholly unsecured mortgage for disposable income purposes. Under Ninth Circuit authority that a wholly unsecured mortgage may be treated as unsecured in a plan, such a creditor does not fall with § 707(b)(2)(A)(iii)(I)'s term "secured creditor"; therefore, in the context of the trustee's objection to confirmation, the Chapter 13 debtor may not deduct payments for such mortgages in the determination of projected disposable income. The court declined to decide the broader issue of whether such deductions were proper for purposes of Chapter 7 eligibility. In re Thissen, ___ B.R. ___, 2009 WL 376768 (Bankr. E.D. Cal. Feb. 12, 2009).

Debtor may deduct property taxes and insurance on residence. For projected disposable income purposes, above median debtor may deduct property taxes and homeowner's insurance that are contractually due under the mortgage; "a payment requirement in a mortgage that inures to the financial benefit of the lender is a payment 'to' that lender, as that term is used in 11

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