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.