United States: Cramdown Plan Of Reorganization: "Dirt-For-Debt"

Last Updated: September 23 2013
Article by Vicki R. Harding

In re Investors Lending Group, LLC, 489 B.R. 307 (Bankr. S.D. Ga. 2013) –

The treatment of a bank's claim under a Chapter 11 plan of reorganization became the last issue that required resolution in order to confirm the proposed plan.  The bank's debt was secured by 12 separate pieces of property with an aggregate value in excess of its debt.  After the creditors' committee filed a competing plan, the debtor and committee submitted a joint plan that proposed to surrender 5 of the 12 parcels to the bank in full satisfaction of its claim.  The bank objected, arguing that this treatment did not provide the bank with the "indubitable equivalent" of its claim, as required for cramdown purposes.

Initially the debtor had proposed to retain all 12 parcels subject to the bank's lien, with the bank debt restructured to provide 5.25% interest with amortization over 20 years.  Release prices for each parcel were to be set at 60% of the scheduled values as of the petition date.  The bank objected to the debtor's valuation of the parcels as being too low (i.e. it should receive more in connection with release of a parcel).  It argued that replacement or fair market value should be used because the debtor intended to retain possession.

This particular dispute was overtaken by events when the debtor and committee proposed their joint plan, which switched to partial "dirt-for-debt" treatment – meaning that the debtor would surrender some of the parcels in full satisfaction of the bank's debt.  This time the bank objected to the proposed valuation of the surrendered properties on the basis that it was too high  (i.e. the actual value of surrendered properties was lower, so that the parcels were insufficient to pay the bank's claim in full).

So, the bank retained its own appraiser and proposed new, lower values.  Although the debtor and committee believed that they could support higher numbers, they accepted the bank's values in order to avoid further litigation.  Using the bank's lower values, the plan was modified to increase the number of surrendered properties from 5 to 7 out of the 12 properties.

After all of the other objections to confirmation were resolved, the bank continued to object to use of its own values in forcing it to accept surrender of only a portion of its collateral in full satisfaction of its debt.  As of the hearing, bank was owed ~$714,000.  Based on the bank's values as accepted by the debtor and committee, the value of the 12 properties was $940,000, and the value of the 7 properties to be surrendered was $752,000.  (The debtor planned to retain the remaining 5 parcels with a value of $188,000.)  The bank objected that (1) $8,000 was an insufficient equity cushion, and (2) the values should be revisited and reduced to liquidation values or should include carrying costs not included in the bank's appraisal.

This dispute was taking place in the context of a cramdown fight.  A cramdown plan must be "fair and equitable," which includes requirements specifically applicable to secured creditors.  (See discussion in RadLAX: Supreme Court Speaks On Credit Bidding.)  Under Section 1129(b)(2)(A) of the Bankruptcy Code, one alternative is to provide the secured creditor the "indubitable equivalent" of its claim.  The court started by noting that if a claim is oversecured, the indubitable equivalent is its face value.  Consistent with this concept, the court had previously sanctioned partial surrender of collateral in full satisfaction of a claim as providing the indubitable equivalent of the claim.

The court concluded that where the debtor proposes to surrender property, a foreclosure or liquidation type value is appropriate.  However, in this case it found that the bank was estopped from arguing that the value it proposed and consented to was not a foreclosure value.  On the other hand, the court also agreed that precedent suggested that the court should take a conservative approach.

So, although the bank was bound by the values it agreed to, the court made adjustments to reflect that in a sale of the surrendered parcels the lender would be able to recover only the net amount after paying a typical realtor's commission and closing costs.  Consequently, the court approved reducing the values for each of the parcels by 8%.

The court concluded by determining that confirmation would be denied unless the debtor offered to surrender property with agreed values totaling $810,000 (i.e. so that the total value would still be sufficient after deducting 8%).  The court invited the debtor and committee to file an amended plan as suggested, advising that the plan could then be confirmed without further notice or hearing.  Not surprisingly, the debtor and committee immediately filed plan amendments, and an order confirming the plan was entered within a couple of weeks.

In the proper circumstances – such as a debtor with inventory of real estate and an oversecured creditor – a dirt-for-debt plan could be a very attractive option.  Of course, the devil is in the details, which in this case includes valuation of the real estate.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Vicki R. Harding
In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.