Chapter 7 bankruptcy liquidation

Law Office of 
Charles E. Andersen

Chapter 7 is also know as straight bankruptcy if you don't want to repay any debt, chapter 7 is an option to consider
Chapter 7 is also called a fresh start bankrutpcy
The US Trustee is a participant in a chapter 7 Hon. John C. Ninfo chief US Bankruptcy Court Judge US Bankruptcy Court
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of Charles E. Andersen







Creditors Election under 1111 (b)


Section 1111(b) election: A partially secured creditor may claim to have her claim in a Chapter 11 case treated as secured to the full extent that the claim is allowed even though, under section 5()6(a), it otherwise would be considered secured only up to the value of the collateral. [B.C. 1111(b)(2)]

(1) Example: Debtor owes $500,000 to Creditor, pursuant to a non-recourse loan secured by a first mortgage on Blackacre, which has a fair market value of $400,000. Creditor's claim is classified in a separate class from the other claims in the case, and Creditor makes the election, under section 1111(b), to have her entire $500,000 claim treated as secured. Subsequently, Debtor defaults on payments to Creditor under the confirmed reorganization plan, at a time when Blackacre has appreciated in value to $500,000. In this instance, the effect of the election will be to enable Creditor to recover the full amount of her claim.

(a) Compare: Assume the same facts as above, except that Creditor does not make the section 1111(b) election. Following Debtor's default, a third party bidder pays $500,000 for Blackacre at the foreclosure sale. .Since Creditor's allowed secured claim was $400,000, the surplus of $100,000 will go to Debtor's estate. Creditor's recovery will lie limited lo $400,000, plus whatever percentage she is entitled lo under the plan on her unsecured claim for a deficiency

(2) Exceptions: The section 1111(b) election cannot be made under either of the following circumstances:

(a) If the creditor's interest in the property is of inconsequential value.
and in the case of a low priority junior lien would be or minimal recovery at foreclosure ; or
(b) The creditor has recourse and the collateral is sold under section 363

(3) Waiver of deficiency claim: if the section 1111(b) election is made, the secured party forfeits her unsecured claim for any deficiency and also loses the opportunity to affect the decision of the unsecured class to accept or reject the plan of reorganization. (B.C. 1111(b)(2); Bankruptcy Rule 30l8(d); In re Southern Missouri Towing Service, Inc., 35 Bankr. 313 (Bankr. W.I). Mo. 1983))

(a) Example: Assume the same facts as in the first example above, except that the value of Blackacre has depreciated to $300,000 at the time of Debtor's default after confirmation. Because Creditor made the section 1111(b) election, she loses her unsecured claim for a deficiency and her recovery will be only $300,000.

(4) Preventing a cash out: The section 1111(b) election sometimes is invoked where the plan proposes no payment to the unsecured creditors, and the electing creditor desires to avert a cash out for the value of her collateral.

(5) Cram down:  Where a secured creditor making the section 1111(b) election rejects the proposed Chapter 11 plan, confirmation can be obtained under the Code's "cram down" provisions if the plan (in addition to providing for the creditor's retention of her lien) proposes to pay the electing creditor deferred cash payments (i) which equal at least the full dollar amount of her allowed claim (without interest), and (ii) which have a present value, as of the effective date of the plan, of at least the value of the collateral.

(a) Example: Creditor loans Debtor $500,000, secured by a first mortgage on Blackacre, which has a value of $600,000. Debtor defaults and then files a Chapter 11 petition. Blackacre has depreciated and is worth $400,000, and Creditor makes the section 1111(b) election. The proposed plan provides for Creditor to retain her lien on Blackacre and to receive deferred cash payments on her claim. Creditor rejects the plan. For the plan to be confirmed over Creditor's rejection, the proposed payments must total at least $500,000 and must have a present value, as of the effective date of the plan, of at least $400,000. (B.C. 1129(b)(2)(A)(i); In re Southern Missouri Towing Service, Inc., supra, 1005]

(6) Time of election:


The section 1111 (b) election may be exercised at any time before the end of the hearing on the disclosure statement or within a later time set by the court. [Bankruptcy Rule 3014]


Click here for Chapter 11 plan.

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Chapter 7&13

If you qualify



  • Creditor Harassment
  • Stop utility shutoffs
  • eliminate payments on unsecured debts.
  • Improve bad credit
  • Surrender car, and other secured collateral without incurring a "deficiency"

**For 13 cases with wage order and balance paid through a trustee as part of a partial re-payment plan and not paid directly to the attorney. Court filing fee is extra.

  • Emergency Petitions filed
  • Ask to see a statement of clients rights and responsibilities


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