Uncommonly Common:  A Chapter 13 Validation of the Seventh Circuit's Interpretation of Section 1111(b)

Section 1111(b) of the Bankruptcy Code has long perplexed bankruptcy practitioners seeking to advise their clients as to its intricacies. When the Seventh Circuit issued its decision in In re B.R. Brookfield Commons No. 1 LLC on November 4, 2013, however, many practitioners viewed it as a watershed decision granting a significant victory for nonrecourse creditors by treating them as unsecured creditors in Chapter 11 cases. Despite its initial promise, very few decisions since Brookfield Commons have addressed whether the holder of a nonrecourse deficiency claim is entitled to an allowed general unsecured claim in a Chapter 11 bankruptcy case. Nevertheless, a significant body of case law has developed surrounding this issue in Chapter 13 cases. While these decisions reflect a split of authority, both lines of cases support the Seventh Circuit's holding that section 1111(b) provides a wholly undersecured nonrecourse creditor with an allowed unsecured claim in a Chapter 11 bankruptcy.

This article appears in the Norton Journal of Bankruptcy Law and Practice, Volume 25, No. 2 (April 2016) and is posted with permission.  Copyright © 2016 Thomson Reuters/West.  For more information about this publication please visit http://legalsolutions.thomsonreuters.com/.

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