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claim for $1,600 may elect to reduce the claim to $1,000 and receive $1,000 rather than partial payments
over an extended repayment period for the $1,600 claim. Of course, the dollar threshold of the conven-
ience class of claims depends, among other factors, on the size of the case and the number of small
claims. In some cases, the threshold exceeds $5,000; in others, $100. Convenience class creditors may
receive less than 100%, subject to the facts and circumstances of a particular matter.
Secured Claims
Generally, with limited exceptions, each secured claim secured by an interest in different property be-
longs in a separate class. The court prioritizes secured claims on the basis of their priority under state
law, the nature of the collateral, and agreement among creditors with respect to subordination. Note that
the Bankruptcy Code provides that claims are secured to the extent of the value of the collateral and are
unsecured for the balance. Chapter 11, "Determination of Claims and Interests," of this practice aid also
discusses secured claims, undersecured claims, and deficiency claims.
Interests
Interests are also classified separately if the securities have different rights. For example, preferred stock
is in a class separate from common stock, and one issue of preferred stock may be in a separate class
from another if the applicable rights are not the same.
Impairment and Voting
Once all claims and interests are divided into classes, the plan must designate whether each class is im-
paired or unimpaired under the plan terms. Section 1124 of the Bankruptcy Code indicates that a claim
or interest is impaired unless the plan leaves unaltered the legal, equitable, and contractual rights of the
claim or interest; or if a default has occurred, cures the defaults, reinstates the maturity date, and com-
pensates the holder of the claim or interest for damages.
Thus, a claim is deemed impaired if the creditor receives less than its original contractual agreed-upon
amount or payment on different terms than agreed. In the XYZ Company example, all classes are im-
paired because XYZ will pay them less than the amounts contractually promised to them or because
XYZ has altered the terms of their original repayment contract. Had XYZ’s plan called for full repay-
ment to its secured creditors and not altered their rights, their claims would be deemed unimpaired be-
cause their interest would remain unaltered.
Only impaired classes receiving a distribution can vote on the plan. Impaired classes which receive or
retain nothing under a plan are deemed to have rejected the plan. Unimpaired classes are conclusively
presumed to have accepted the plan.
Plan Acceptance
In order for a class of creditors entitled to vote on a plan to accept a reorganization plan, that plan class
must receive a requisite number of affirmative votes from those casting ballots, or not be impaired. Un-
der the Bankruptcy Code, a class of claims is deemed to have accepted a plan if two-thirds in amount
and more than one-half in number of the allowed claims vote for acceptance of the plan. A class of in-
terests, usually equity security holders, is deemed to have accepted a plan when holders of two-thirds of
the shares that voted have accepted the plan. Note that usually only the claims of creditors or interest
holders who actually vote are counted for this purpose. One of the most important concepts of Chapter
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