CBS Creditor Rights & Negotiations 3 — Questions and Answers
Question 1: Under the Bankruptcy Code, which of the following creditors holds a 'claim' as defined in § 101(5)?
- A creditor with a contingent, unliquidated tort claim (Correct answer)
- Only creditors with fixed, liquidated debts
- Only secured creditors with perfected liens
- Only creditors whose claims arose pre-petition
Correct answer: A creditor with a contingent, unliquidated tort claim
Section 101(5) broadly defines 'claim' to include contingent, unliquidated, and disputed rights to payment.
Question 2: A creditor's committee in Chapter 11 is typically composed of:
- The seven largest unsecured creditors willing to serve (Correct answer)
- All creditors who filed proofs of claim
- Creditors appointed by the bankruptcy judge
- Only trade creditors, excluding bondholders
Correct answer: The seven largest unsecured creditors willing to serve
Under § 1102, the U.S. Trustee appoints an official committee of unsecured creditors, ordinarily including the seven largest unsecured creditors willing to serve.
Question 3: In negotiating a cash collateral order with a Chapter 11 debtor, which form of adequate protection is LEAST likely to be accepted by a secured lender?
- A replacement lien on post-petition assets
- Periodic cash payments equal to the collateral's depreciation
- The debtor's promise to maintain the collateral's value (Correct answer)
- A superpriority administrative claim under § 507(b)
Correct answer: The debtor's promise to maintain the collateral's value
An unenforceable promise without concrete security is inadequate protection; courts require tangible measures like replacement liens or cash payments.
Question 4: A landlord creditor holds a $2 million claim for future rent under a rejected commercial lease. What is the cap on the landlord's allowed claim under § 502(b)(6)?
- The greater of one year's rent or 15% of the remaining lease term, not exceeding three years' rent (Correct answer)
- The full amount of future rents through lease expiration
- Six months of rent only
- The amount of unpaid pre-petition rent only
Correct answer: The greater of one year's rent or 15% of the remaining lease term, not exceeding three years' rent
Section 502(b)(6) caps a landlord's rejection damages at the greater of one year's rent or 15% of remaining rent, not to exceed three years.
Question 5: Which doctrine allows a court to subordinate a creditor's claim to other creditors' claims based on inequitable conduct by the creditor?
- Equitable subordination under § 510(c) (Correct answer)
- Substantive consolidation
- The absolute priority rule
- Recharacterization doctrine
Correct answer: Equitable subordination under § 510(c)
Section 510(c) authorizes courts to subordinate a claim or lien under principles of equitable subordination for inequitable conduct that harms other creditors.
Question 6: A creditor negotiates a pre-petition settlement with the debtor within 90 days of filing. The settlement payment is likely:
- Avoidable as a preference if it enabled the creditor to receive more than in a Chapter 7 liquidation (Correct answer)
- Protected because it was a negotiated settlement
- Protected because settlements are excluded from preference analysis
- Avoidable only if the creditor had knowledge of the debtor's insolvency
Correct answer: Avoidable as a preference if it enabled the creditor to receive more than in a Chapter 7 liquidation
A pre-petition settlement payment is still subject to preference avoidance if it satisfies all elements of § 547(b), including the 'more than Chapter 7' test.
Question 7: Under § 1111(b), a non-recourse secured creditor in Chapter 11 may elect to have its entire claim treated as secured. What is the primary consequence of this election?
- The creditor cannot vote as an unsecured creditor on the plan but may receive value equal to the full claim over time (Correct answer)
- The creditor waives its right to contest the plan
- The creditor's lien is automatically released upon plan confirmation
- The creditor receives immediate payment of the full secured claim
Correct answer: The creditor cannot vote as an unsecured creditor on the plan but may receive value equal to the full claim over time
The § 1111(b) election allows a non-recourse creditor to have its full claim treated as secured, but it forfeits its deficiency claim and cannot vote in the unsecured class.
CBS Creditor Rights & Negotiations 3
Under the Bankruptcy Code, which of the following creditors holds a 'claim' as defined in § 101(5)?