The court sustained the objection to confirmation filed by the Subchapter V trustee regarding the plan provisions for payment of a secured creditor’s § 1111(b) claim. The court found that the plan proposes to pay to the secured creditor “far more than it is entitled to receive as a result of its election under 11 U.S.C. § 1111(b), [so] there is less money available to pay to unsecured creditors. Accordingly, the plan discriminates unfairly and is not fair and equitable to the class of unsecured creditors.”

In this case, the bank was under-secured. It elected under § 1111(b)(2) to waive its unsecured deficiency claim and have the entire debt treated as a secured claim. The practical application of § 1111(b)(2) is a two-part test, derived from § 1129(b)(2)(A)(i)(II), where the debtor must pay the electing creditor a stream of payments that has a present value equal to the value of the creditor’s collateral and the total amount of the stream of payments must equal the amount of the creditor’s debt.

The majority of courts permit interest payments on the allowed secured portion of the claim to apply to both parts of the § 1111(b)(2) calculation, which is the better-reasoned approach and “gives effect to the plain language of § 1129(b)(2)(A)(i) which merely requires that in a cram down, the creditor making the § 1111(b)(2) election receive a stream of payments equal to its total claim and with a present value equal to the value of the collateral. Requiring anything more would be an unwarranted and unsupportable extension of the statutory requirements of § 1129(b)(2)(A).”

Because the plan as proposed contemplated overly generous payments on the bank’s § 1111(b) claim at the expense of unsecured creditors, confirmation was denied.