Comparison of Chapter 13 Plan Forms in the SD, CD and ND

Jon’s post here got me thinking about the attorney in the Southern District, who to me at least, seems to have committed malpractice by filing a bad Chapter 13 Plan.

The facts in the In re Schleger case, which you can read here, are dumb-bed down as follows: Chapter 13 Plan is filed where Debtors say they will pay 48% of unsecured claims. They know that they are about to void a 150k lien but they do not amend their plan to reduce the 48% or really do anything to deal with the claim. Five years passes and they want a discharge despite not paying anywhere close to 48% or amending their plan. That’s just a ridiculous position to take! But was it his fault or the system’s fault? This  case was an appeal from the Southern District which we will see has a confusing form.

If you look at a ND Cal. Chapter 13 plan, it has the following plan treatment for unsecured creditors:

Class 7: All other unsecured claims
.  These claims, including the unsecured portion of secured recourse claims not entitled to priority, total approximately $                .  The funds remaining after disbursements have been made to pay all administrative expense claims and other creditors provided for in this plan are to be distributed on a pro-rata basis to Class 7 claimants.

[select one of the following options:]

____     Percent Plan.  Class 7 claimants will receive no less than __% of their allowed claims through this plan.

____     Pot Plan.  Class 7 claimants are expected to receive __% of their allowed claims through this plan.

If you put a check next to Percent Plan, then you must either pay the percent or modify the plan. If you put a check next to Pot Plan, then you need to pay the Pot and not worry about the percent! Chapter 11 and 13 plans should make it clear they are pot plans whenever appropriate to do so!

Let’s look at the less clear SD Cal. Chapter 13 Plan:
Non-priority Unsecured Claims. After dividends to all other creditors pursuant to the plan, trustee may pay dividends pro-rata to claims allowed unsecured. Unsecured non-priority creditors will receive: ______________% or a pro-rata share of $_______________________, whichever is greater. (The dollar amount is the greater of (1) the nonexempt assets or (2) the applicable commitment period of 36 or 60 months multiplied by debtor’s projected disposable income).
If both the percentage and dollar amount are left blank, trustee is to pay 100% to unsecured creditors. If the percentage is left blank, trustee will pay the dollar amount to unsecured creditors. If the percentage is filled in at less than 100% and the dollar amount is left blank, trustee is authorized to increase the percentage if necessary to comply with the required applicable commitment calculation. 
I added some emphasis to this paragraph, It actually allows a pot plan or a percentage plan, the attorney has to fill int he appropriate boxes. In the BAP case, the attorney filled out the percentage portion — meaning the Debtors promised to pay the percentage. If the attorney had only filled out the second box, everything would have been okay.

Finally, looking at the CD Cal Chapter 13 Plan:
The Debtor estimates that non-priority unsecured claims total the sum of $_______________________.
My interpretation is that this is a default pot plan so the issue with respect to the percentage should not come up. Had this attorney been in the Central District of California, what amounts to, in my opinion, malpractice in the Southern District would not have been in the Central District.

The Northern District’s plan makes the most sense to me. It is abundantly clear that when a debtor puts the check mark next to “Pot Plan,” then the plan is a Pot Plan!

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