The answer has to do with paying money into a pot, not other kinds of pots.
There is surprising flexibility in how debtors can structure their repayment plans in chapter 13 New York bankruptcy, especially as they apply to unsecured creditors. The reason for this flexibility isn’t simply to give debtors more options; rather, it’s to keep debtors’ plans on track despite a crucial factor that is beyond their control: creditors’ claims of what debtors owe them.
Here’s an explanation: After debtors file their cases, creditors face a deadline for returning their proofs of claim to the bankruptcy court. According to the Federal Rules of Bankruptcy Procedure 3002(c), a proof of claim is due within 90 days of the meeting of the creditors (aka “the 341 meeting”). There are some exceptions to that rule, e.g. government units get 180 days to file their proofs of claim over tax and other debts. Usually creditors file these in a timely manner, but debtors don’t benefit from waiting until all of them do so. It behooves them to move their cases forward and propose a repayment plan.
Naturally, the plan will pay secured creditors and priority claims in full, but then the question turns to what the unsecured non-priority creditors get, especially when they might not have filed their proofs of claim. Debtors might not know how much they owe their creditors, and in New York, they must promise to pay down a portion of their unsecured claims or their plans won’t be confirmed.
Because of these unknown variables, debtors can choose to structure their plans so that they will be confirmed even if creditors haven’t officially informed the bankruptcy court how much they’re owed. Option number one for the debtor is a “percentage plan,” which promises each creditor a specified portion of its claim. Option number two is a “pot plan,” which gives the creditors a pro-rated share of an agreed-upon sum of cash.
Here’s a simplified example. Debtor owes $15,000 to Creditor A and $7,000 to Creditor B. Under a percentage plan, the debtor would, let’s say, promise to pay these creditors 20 percent of what they are owed, $3,000 and $1,400, respectively. Under a pot plan, Debtor promises to pay $4,500 into the pot over the course of the plan, and this sum would be divided between the creditors based on what they are owed. For Creditor A, this winds up being $3,068.18 ($15,000 divided by ($15,000 + $7,000)), and Creditor B receives $1,431.82.
Percentage plans are advantageous for debtors who owe money to creditors that might not file their proofs of claim, whether on time or at all. If a plan is confirmed and a proof of claim is found untimely, then the debtor need not pay anything to it at all. On the other hand, if a creditor files its proof of claim at the last minute, and it’s greater than what the debtor can afford, then the plan will need to be modified or the bankruptcy case dismissed.
By contrast, pot plans work better for debtors who are concerned that creditors might not file their claims on time or file them for higher amounts than they believe they owe. They also work well because debtors can easily promise to pay all their disposable incomes into the plan and let the creditors essentially fight over whatever is left for them.
Obviously, it’s also possible to combine aspects of both types of plans: a promised percentage to each creditor and a prorated share to all of them to cover the remainder of the debtors’ disposable income. This type of hybrid plan is more common in upstate New York.
The lesson of these types of plans, again, is that strategy and good math skills are necessary to form a workable chapter 13 repayment plan.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Chapter 13 Bankruptcy Lawyer Brooklyn NY Bruce Weiner for a free initial consultation.
