“That woman filed a claim in our bankruptcy case, and we don’t owe her any money!”
The next line, or paragraph really, of my client’s email asked what was I, her bankruptcy lawyer, going to do about it.
The short answer was nothing.
Not a thing.
I didn’t plan to do anything.
Because when you have a pot plan in Chapter 13, it doesn’t matter who files a claim or for how much.
You pay the same.
Pot or Percentage
When you choose Chapter 13, you get to set the terms of the plan. The plan tells creditors and the Chapter 13 how much money you’ll pay the trustee each month and how that money gets distributed.
The claims of creditors are categorized: secured, priority, co signed, and general unsecured.
You can treat claims of the run-of-the-mill unsecured creditor in two different ways. You can promise each unsecured creditor a certain percentage of their allowed claim:
Creditors holding unsecured claims shall receive 20% of their claim.
Or, you can propose a “pot” plan. You fund a pot of a specified number of dollars, to be shared among unsecured creditors according to the percentage of the total claims represented by that creditor’s claim.
When filed claims differ
The difference between the two ways of stating your payment plan comes out when claims are actually filed. (No creditor gets paid in Chapter 13 without filing a claim.)
If the plan is a percentage plan, and the filed claims total more than the debtor scheduled, the debtor has to put more money into the plan so that everyone gets their promised percentage.
And, conversely, if fewer creditors file claims, or the amounts are lower, the debtor may get a break. It takes fewer dollars to fund the plan.
But, if the plan is a pot plan, the total of the claims doesn’t matter. The debtor has promised to fund a pot of a given number of dollars. If the claims are less or more, it doesn’t change the debtor’s obligation.
Why fight about pot plans
So you see why I had no plans to challenge the disputed claim in my client’s case. Her case featured a pot plan.
Think of the money she paid into the plan as a pie.
The only set of people to whom it made an economic difference whether the claim was paid or not were the other creditors with filed claims. They would get a larger slice of the pie if the number of creditors sharing in the pie is reduced.
All my client would get if we objected to the claim in question was a bill for my work getting the claim disallowed. Her commitment to funding the pot wouldn’t change.
I like simple
I’m a fan of the pot plan because it’s predictable. There’s enough stress in a debtor’s life without having to worry about who files claims and for how much.
Sometimes, after the fact, the debtor might have come out better with a percentage plan.
But changing things in a Chapter 13 requires attorney’s fees, and those fees are likely to eat up any savings that lower filed claims might have offered.
What if you can’t make your Chapter 13 payments
Get rid of credit cards without paying interest
Huge tax penalties no big deal in Chapter 13