“Would you like to ride in my beautiful balloon
Would you like to ride in my beautiful balloon
We could float among the stars together, you and I
For we can fly, we can fly
Up, up, and away
My beautiful, my beautiful balloon”
(Song by the 5th Dimension-1967)

Debtors’ counsel often struggle to formulate a Chapter 13 plan that debtors can realistically fund through monthly payments over a three-to-five-year term. In addition to maintaining ordinary living expenses as reflected on Schedules I and J, debtors may face significant mortgage arrears, tax liabilities, or other secured or non-dischargeable claims that must be satisfied before plan completion.

These challenges frequently prompt consideration of a balloon or lump-sum payment at the end of the plan term. May a debtor confirm a Chapter 13 plan that provides for such a balloon or lump-sum payment? Is this type of provision permissible? If so, under what circumstances will it be deemed feasible?

Often, debtors enter Chapter 13 with limited income and resources except for home equity.  The first challenge is to save the home.  Debtors and their counsel will attempt to develop a repayment plan to satisfy the mortgage creditor, as well the other parties in interest. When the math just does not add up, creative plan provisions are crafted.  An example of this maybe where the debtors propose to refinance prior to 54 months, or in the alternative, sell the home before the 60-month term ends to complete the plan with a balloon payment. Periodic monthly payments may be included with this plan.

Prior to BAPCPA, under a variety of circumstances, many chapter 13 plans included balloon or lump sum payments.  Post BAPCPA, the majority rule is that balloon payments are proscribed by the amendments as set forth in §1325(a)(5)(B)(iii)(I).  The courts generally hold that balloon payments by their very definition are not periodic payments, and Congress did not intend to allow such payments under Section 1325(a)(5)(B)(iii)(I).

There are circumstances where these payments may be allowed in plans. Let us explore when balloon payments may be included.

Of course, if the mortgage creditor accepts, or does not object to confirmation, the debtor’s proposed plan may be confirmed and go forward. If, however, there is an objection, there still may be a path forward in such case.

In the case of Shumbera 2020 WL 718350 Bankr M.D. Florida 2020 the court denied the debtor’s motion to modify the plan that provided for continuing monthly mortgage payments, but paying the bank’s prepetition mortgage arrears in a lump sum final plan payment in month 60. The court cited the majority rule holding, unless the creditor consents, ballon payments re prohibited under Section 1325(a)(5)(B).

On the other hand, in the case of In re: Olsen 604 BR 790 Bankr W.D. Wisconsin 2019, the court confirmed the debtor’s plan with a balloon payment, over the bank’s objection. It held the plan was feasible and appropriate under the circumstances.  For an interesting discussion of this case, see “Rare Case Approving Chapter 13 Plan with Balloon Payment”  https//tampabankruptcy.blogspot.com/2019/07/rare-case-approving-chapter-13-plan.html, ABI 2019.

Chapter 13 plan provision that include balloon payments may be allowed under certain circumstances.  One important consideration may be to shorten the term required to fulfill the balloon payment.  This will help establish feasibility and motivation of the debtor to refinance or sell.  Another important provision may be to include automatic stay relief should the debtor fail to make the balloon payment.  In any event, it is worth the effort to negotiate to try to make the balloon fly.

(Printed with permission, NACTT Academy, Considerchapter13.org, March 25, 2026)