Learn the Bankruptcy Lingo

While we’re learning to “walk the walk”, we might as well learn to “talk the (bankruptcy) talk”.  Each profession has its shorthand for concepts that are encountered repeatedly.  For bankruptcy lawyers, that includes the distinction between Chapter 13 “percentage plans” vs. “pot plans“.

These terms are alternative ways that the dividend to unsecured creditors in a Chapter 13 case is expressed in the plan.  In a percentage plan, the debtor promises a payout of a certain percent to creditors:  1% or 15% or 100%.

In a pot plan, the debtor commits to paying a certain sum into the plan, to be shared by creditors pro rata.  The exact fraction of each claim that is paid will be dependent on the sum of the  claims actually filed.  These are sometimes also referred to as “base” plans.

Chapter 13 is procedurally  quite variable and some districts have either required plans or ingrained custom that favors one approach over the other.

I tend to favor pot plans, since it provides certainty to the debtor as to the size of the financial commitment and it frees the debtor from reviewing filed proofs of claim. The debtor in a pot plan is indifferent how large any one claim is, since the only parties affected by an inflated claim are other creditors, whose slice of the pie shrinks with the filing of larger claims.

A percentage plan might be advantageous if you had lots of very old claims where a large number of claims could be expected to go unfiled.  If you had an unliquidated tort claim, you probably wouldn’t choose a percentage plan, where the debtor has a real stake in the size of the damages.

So, now you can add “pot plan” and “percentage plan” to your bankruptcy vocabulary.

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  • http://www.nationsandlockhart.com Stan Lockhart

    You introduced the term ‘Pot’ plan at your Saturday seminar a few months ago….
    I thought I was in the wrong room cause I had done both of my C13′s at a %Plan, but then I use Best Case and wasn’t sure there was a name for it.

    When are you planning your next seminar…lots of us newbies out here waiting your guiding hand. Thanks what you do for us.

  • Jeena Cho

    So, if I propose a 1% plan, that mean each creditor is entitled to get 1% of its POC paid? How about if the Plan is confirmed then the POC comes in higher than what is scheduled? Will the Tee recalculate the Plan and demand a higher payment? In SF, Plan says “estimated to be” x%.

    • http://www.moranlaw.net Cathy Moran

      Stan- more classes coming soon: perhaps a repeat of the Means Test; Chapter 13, Beyond the Filing; then one on business issues in bankruptcy; and community property. I just need a 36 hour day…

      Jeena-San Francisco’s plan is a pot plan; the “estimated percentage” is a courtesy to creditors so they have some idea how the pot is expected to be divided. Your point about the claims coming in higher is exactly why I’m not usually fond of percentage plans: you end up modifying to provide the promised dividend.

      • greg

        How would you interpret this document sent by the southern district of alabama
        REMINDER REGARDING CASES FILED BEFORE 10/15/2010 WITH AMP!

        Do not file SOA’s or Plan’s with POT language in them. Previously the Trustee’s Office sent out the AMP (Alternate Monthly Payments) Language that included POT amounts to unsecured creditors. We have since asked everyone to no longer include the POT language. If you need to file a SOA or an AMD plan to include AMP, please make sure to remove the POT language to unsecured. We will not confirm cases with POT language. I have attached an example of the AMP language.

        Please note that you may file a SOA to provide AMP to a secured creditor (based on a withdrawal of objection) if that creditor is the only secured creditor in the case. If you choose to file an Amended Plan rather than a SOA, you must file a Motion to Modify once the case is conditionally confirmed. If you agree to provide AMP to one secured creditor you must amend the plan to proved AMP to all secured creditors and we will not conditionally confirm the case until the Amended plan is filed and noticed.

        Please note this only applies to case filed before 10/15/2010 as you are to begin using the New Form Plan posted on the courts website.

        • Cathy Moran, Esq.

          To me, from Northern California, this is incomprehensible since I don’t know what an Alternate Monthly Payment is. Is POT an acronym or is it referring to a pot plan? Fraid you’ll have to get a local to interpret for you: the accent’s too thick for me.