There are 7 essential provisions for each Chapter 11 plan, under Bankruptcy Code Section 1123(a)(1)-(7). Each plan shall:

1).  Designate classes of claims and interests   2).  Specify any class which is not impaired under the plan   3).  Specify the treatment of any class which is impaired under the plan   4).  Provide the same treatment for each claim or interest in a particular class, unless the holder of a particular claim or interest agrees to less favorable treatment   5).  Provide adequate means for the plan's implementation   6).  Include certain protections for equity security holders as far as voting power in the reorganized debtor   7).  Contain provisions for the selection of officers, directors and trustees as are consistent with public policy and the interests of creditors

Additional Provisions for Individual Debtors

      For individual Chapter 11 debtors, Bankruptcy Code Section 1123(a)(8) adds one further requirement: the plan must pay to creditors all or such portion of the debtor's post-petition earnings or other future income as is necessary for the execution of the plan.

Optional Provisions

      Under Bankruptcy Code Section 1123(b), there are 6 optional Chapter 11 plan provisions. The plan may:

1).  Impair or leave unimpaired any class of claims or interests, secured or unsecured;   2).  Provide for the rejection, assumption and/or assignment of executory contracts and unexpired leases;   3).  Provide for the settlement, adjustment, retention, or enforcement of claims or interests which the debtor or the estate may have against others;   4).  Provide for the sale of all or substantially all of the assets of the estate, and the distribution of the proceeds of sale amongst the holders of claims and interests;   5).  Modify or leave unaffected the rights of the holders of secured and unsecured claims, except that there can be no modification of a claim secured solely by the debtor's residence; and   6).  Include any other provision that is not inconsistent with the Bankruptcy Code.

Prohibited Provisions

      There are some items which cannot be put into a Chapter 11 Plan. They include:

Use of Exempt Property -Under Bankruptcy Code Section 1123(c), a Chapter 11 plan filed by anyone other than the debtor cannot have any provisions for the use, sale, or lease of the debtor's exempt property, unless the debtor has so agreed. This is because exempt property has ceased to be property of the bankruptcy estate and belongs to the debtor in his individual capacity, free and clear of creditors' claims and any administrative expenses of the bankruptcy case; and Home Mortgage Modification -Under Bankruptcy Code Section 1123(b)(5), a plan in an individual's Chapter 11 case cannot modify the rights of a secured creditor whose claim is secured solely by a lien on the debtor's principal residence. This means that most mortgages on debtor's homes cannot be modified. A debtor is still allowed to make up the arrears over time, but he cannot change the interest rate, reduce the principal, or reduce the monthly payment.

Multiple Security / Mortgages

      If a lender has multiple security, such as a mortgage on the debtor's home and also a mortgage on an office building owned by the debtor, then there is no prohibition on loan modification. If the security is a second mortgage on the residence, and the fair market value of the residence is equal to or less than the first mortgage, then it is considered completely unsecured. In this instance, it is subject to modification, including being stripped off the residence completely.

Written by Henry Rendler