Classification of Claims and Interests in Chapter 11 and 13 Cases

Abstract

Both in reorganization cases under Chapter 11 and in debt adjustment cases under Chapter 132 of the Bankruptcy Code the formulation and confirmation of a rehabilitation plan are the central features of the proceedings. Likewise, in both types of rehabilitation cases the classification of claims and the treatment accorded to each class are essential for the success of the restructuring of the economic affairs of the debtor and the debtor's rescue from liquidation. As Chapter 13 is available only to individuals with regular income, the classification will affect only unsecured and, exceptionally, secured claims and will be relatively uncomplicated. Moreover, one of the most common problems-the permissibility of preferential treatment of unsecured consumer debts guaranteed by an individual other than the debtor-was resolved affirmatively by the Amendments of 1984.3 Conversely, the classification problem in Chapter 11 cases is considerably more complex owing to the greater range and variety of the claims 4 and interests' affected and to the statutory scheme of votes by classes as a prerequisite for confirmation. Although Chapter 11 contains detailed provisions relating to the designation of classes,6 the treatment of claims or interests within a class,7 and the standards of fairness and equitableness with respect to a class and to relative treatment of senior and junior classes,8 there still exist many doubts as to the amount of flexibility permitted to secure the acceptance of a confirmable plan despite the