So apparently you can loose balloons. I was running around town with my friend with our balloons being silly and I (having bad luck) fell on my face. And my balloon floated away.
This greatly upsets me because as a kid I'd always loose my balloons and I was happy that I game would not implement that. Yet, it did.
I remembered there was a thread about this on GameFAQs. Tripping over while holding a balloon causes you to lose it. Since they are so hard to get, I advise resetting if this happens.
I don't think I've ever tripped before maybe because I use my other characters to visit Katrina. I also heard a rumor that bunny balloons last more than regular ones.