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alone justify separate classification."127 As will be seen below, while many courts still repeat this rather unexamined assumption that the "legal nature" of the claim alone governs classification, they do not consistently apply that rule but instead often look to the nature of the creditor holding the claim, or other rights the creditor may enjoy in addition to the those embodied in the claim.
While arriving at a contrary conclusion as to whether a deficiency claim is similar to trade claims, the Seventh Circuit in Woodbrook128 apparently agreed with the Fifth Circuit that similarity is determined based on the nature of the legal rights. The Seventh Circuit in Woodbrook flatly rejected the Greystone analysis, concluding that the differing legal rights of the Code-created deficiency claim not only justified, but required, separate classification. The court noted that significant disparities do exist between the § 1111(b) claim and other unsecured claims, principally because the "§ 1111(b) claim exists only as long as the case remains in Chapter 11 and, once converted to a Chapter 7 case, recovery is limited to its collateral."129 This also creates an anomaly in applying the best interests test of § 1129(a)(7), because "the § 1111(b) claimant is not entitled to payment under Chapter 7. Yet, because the § 1111(b) claimant has been classified with other general unsecured creditors and because § 1123(a)(4) mandates the same treatment of all claims in the class, the § 1111(b) claimant can block confirmation unless it receives payment of an amount equal to that of the general unsecured creditors." The Seventh Circuit concluded: "We find that, at least where the debtor is a partnership comprised of a fully encumbered single asset, the legal rights of a § 1111(b) claimant are substantially different from those of a general unsecured claimant. Accordingly, we hold that § 1111(b) and § 1122(a) not only permit but require separate classification of HUD's § 1111(b) unsecured deficiency claim in Class 4."130
127
In re Boston Post Road Limited Partnership, 21 F.3d 477, 483 (2d Cir. 1994), cert. denied, 115 S. Ct. 897 (1995). See the thorough discussion of Boston Post Road in NORTON BANKRUPTCY LAW ADVISER, June 1994.
128 In re Woodbrook Assocs., 19 F.3d 312, 318 (7th Cir. 1994).
129
Id. at 318-19.
130
19 F.3d at 319. The court ultimately upheld the bankruptcy court's dismissal of the case, however, on the ground that the proposed plan violated the absolute priority rule because the proposed $100,000 capital infusion was not sufficiently substantial in comparison to the $2.6 million of unsecured debt (a ratio of 3.8%). Noting that "this determination may not always hinge on a comparison of the proposed contribution to the total amount of unsecured debt," but rather be a "common sense determination," the court felt it had to uphold the bankruptcy court's factual determination of insubstantiality as not clearly erroneous. Id. at 320. The court also noted that the "current trend is to treat the new value precept not
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