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"entitled" to have an unsecured deficiency claim pursuant to § 506. This argument has prevailed in at least four reported cases.
These opinions ignore the clear legislative history that § 1111(b) was enacted to prevent cash out at an appraised value, not to provide a veto power. Nor is there any provision of §§ 506 or 1129 that would prevent such treatment, provided the unsecured creditor classes do not object. The cases thus rest solely on the negative implication of § 1111(b) that because it is the creditor's election to make, the debtor cannot make it for the creditor. Perhaps it could also be argued that § 1122 requires classification based on the nature of the claim as of the petition date, not as of the effective date of the plan.
Another way to deal with the secured creditor's potential domination of the unsecured creditor class, at least if the secured claim is nonrecourse, is to avoid the creation of the § 1111(b) deficiency claim. This can be done if the plan provides for sale of the collateral, at which the secured creditor is provided the right to credit bid, because Code does not give the nonrecourse creditor a deficiency claim if the "property is sold under section 363 of this title or is to be sold under the plan." An example of this approach is T-H New Orleans. The debtor's plan eliminated the § 1111(b) election by providing that the debtor would actively market the hotel to obtain the highest possible price, but if it were not sold within two years it would be deeded to the secured creditor. The Fifth Circuit found this treatment permissible because the secured creditor retained the right to credit bid the "full allowed amount of its finally allowed claim," not just the secured portion equal to the value of the collateral. If such a delayed sale is permissible, it provides a strategy for debtors to avoid the problem of the large unsecured Code-created deficiency claim while speculating on the ability to profit from future appreciation in the value of the property.
Virtually all of the modern classification debate stems from the Code's new confirmation requirement of an accepting impaired class. This poses particular problems for single asset cases with few creditors, as was predicted in one of the 1977 decisions that
