Deficiency Claim

The difference between the court-determined value of the lender’s collateral and the amount of the lender’s total claim. A deficiency claim that is nonrecourse under the loan documents is transformed into a recourse claim under Chapter 11 (but not Chapter 7) by Section 1111(b)(1). It is the undersecured creditor’s “virtual” recourse deficiency claim that often gives it a powerful blocking position with respect to a Chapter 11 plan.

Bankruptcy Code §§ 506(a), 1111(b)(1). See also 1111(b) Election, Alchemy, Confirmation Requirements, Undersecured Creditor.

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