What Is a Section 1111(b) Election in Chapter 11?
A Section 1111(b) election may allow an eligible undersecured creditor to have its entire allowed claim treated as secured for plan purposes, rather than receiving a secured claim limited to collateral value plus a separate unsecured deficiency claim. The election changes required plan treatment.
Why the Election Exists
Without the election, Section 506 generally limits the secured claim to collateral value and treats the balance as unsecured. Section 1111(b) offers qualifying creditors an alternative intended to preserve participation in potential future collateral value.
Effect on Plan Payments
If the election applies, the plan generally must provide deferred cash payments totaling at least the allowed claim, with a present value at least equal to the creditor’s collateral interest. This can materially affect payment structure and feasibility.
Limits on the Election
The Bankruptcy Code restricts the election in specified circumstances, including certain sales and situations where the creditor’s collateral interest is of inconsequential value. Timing and voting procedures also matter. Review 11 U.S.C. § 1111.
Strategic Considerations
A creditor may compare expected unsecured distributions, collateral appreciation, interest, payment duration, and foreclosure alternatives. A debtor must model both election outcomes when negotiating a plan.
Frequently Asked Questions
Does every secured creditor make an 1111(b) election?
No. Eligibility and strategy differ, and an election must be made according to applicable procedures and deadlines.
Does the election make the collateral worth the full debt?
No. It changes plan treatment but does not change the collateral’s actual value.
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This article provides general information and is not legal advice. Outcomes depend on current law and the facts of each case.