Ralph A. Pearson and Karen Pearson

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Case 09-45266 Docé65 Filed 04/28/10 Entered 04/28/10 15:42:31 Desc Main
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UNITED STATES BANKRUPTCY COURT
DISTRICT OF MASSACHUSETTS

IN RE: )

) CHAPTER 13
RALPH AND KAREN ) CASE No, 09-45266
PEARSON, )

)
DEBTORS )

)

MEMORANDUM OF DECISION

This matter arises as a result of the Objection of Denise M. Pappalardo, Chapter 13
Trustee (docket # 41) to Confirmation of the First Amended Chapter 13 Plan of Ralph and Karen
Pearson (the “Debtors”) and the Debtors’ Response thereto (docket #49). At a non-evidentiary
hearing on April 21, 2010, counsel for the parties ably presented arguments and J took the matter
under advisement. For the reasons more fully set forth below, I sustain the Chapter 13 Trustee’s
Objection.

The Plan to which the Chapter 13 Trustee objects identifies itself as a “pot plan” and calls
for the Debtors to pay $3,671.94 over 36 months, to be applied to pay allowed priority and
administrative claims, including the Chapter 13 Trustee’s commission, in full, with the balance
to be paid to unsecured creditors pro rata .' In this regard the Plan is not unusual. What prompts
the Chapter 13 Trustee’s objection is a Plan provision calling for future unspecified post-
confirmation administrative claims to be paid out of the Plan. The Plan provides in paragraph 8

of its “Miscellaneous Provisions”:

' “A ‘pot plan’ refers to a plan which provides that the debtor will pay a fixed amount or
‘pot’ of money into the bankruptcy estate but the percentage creditors will receive ultimately
depends on the total amount of claims that are approved.” In re Martin, 232 B.R. 29, 33-34
(Bankr. D. Mass. 1999) (quoting In re Witkowski, 16 F.3d 739, 741 (7th Cir. 1994)).

l

AUTHENTICATED
U.S. GOVERNMENT
INFORMATION

GPO

Case 09-45266 Docé65 Filed 04/28/10 Entered 04/28/10 15:42:31 Desc Main
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In the event the court allows, after notice and a hearing, an administrative expense

pursuant to an application that specifically states that the expense is to be paid by

the Trustee, the Trustee shall pay such expense from funds that would but for this

provision have been paid to general unsecured creditors, provided that this

provision shall not operate to reduce the dividend to be paid holders of allowed

priority claims.
This provision creates the possibility (indeed, based on the de minimis size of the pot, the
likelihood) that a post-confirmation administrative claim could consume the pot, thereby
reducing any future dividend to general unsecured creditors to zero and, if the administrative
claim were large enough, leaving a portion of the administrative claim unpaid. The former could
create a violation of 11 U.S.C. §1325(a)(4), which requires that holders of allowed unsecured
claims receive under a plan not less than the amount they would receive in a Chapter 7
liquidation. The latter would violate 11 U.S.C. § 1322(a)(2), which requires a plan to provide for
full payment of claims entitled to priority under 11 U.S.C. § 507, which includes administrative
claims.

Under 11 U.S.C. §1325(a)(1) the Debtors’ Plan is unconfirmable. The Chapter 13
Trustee’s Objection is sustained. The Debtors shall have 30 days to file an amended plan. A
separate order will issue.

Dated: April 28, 2010 By the Court,

Melvin S. Hoffman
U.S. Bankruptcy Judge