## Facts

- Bloomingdale Partners, an Illinois limited partnership, filed Chapter 11 and owned a single significant asset: an apartment building in Bloomingdale, Illinois.
- John Hancock Mutual Life Insurance Co. was the sole secured creditor and the primary objector to the debtor’s latest plan.
- The debtor had three impaired unsecured claims of the same priority: (1) the Zarlengas’ state-law tort/nuisance claim and (2) two contract-based claims.
- Under an earlier plan, the unsecured claims were grouped together; the Zarlengas opposed the plan, preventing an accepting impaired class and defeating the requirement of 11 U.S.C. § 1129(a)(10).
- The debtor modified its plan to place the Zarlenga claim in its own unsecured class, leaving the two contract claims in a different impaired unsecured class.
- Hancock moved to strike the modified plan and dismiss the case, arguing the separate classification was an artificial voting strategy.

## Issues

1. Whether a Chapter 11 debtor may separately classify substantially similar unsecured claims (tort and contract claims of equal priority) primarily to create an impaired accepting class under 11 U.S.C. § 1129(a)(10).
2. What standard governs classification of unsecured claims under Chapter 11 when claims share the same priority and similar rights against the estate.

## Decision

- The court adopted a “restrictive classification” standard requiring that substantially similar claims be placed in the same class, considering legal and other relevant attributes.
- The court held the modified plan’s separate classification of the Zarlengas’ claim was improper because the claims were substantially similar and the separation lacked a legitimate basis apart from voting.
- The court struck the modified plan and denied confirmation because, under proper classification, no impaired class accepted the plan as required by § 1129(a)(10).
- The court dismissed the Chapter 11 case after concluding the debtor was unable to effectuate a confirmable plan.

## Legal Principles

- Claims that are “substantially similar” must be classified together when their legal rights and priority are materially the same; classification cannot be manipulated to obtain plan acceptance.
- Separate classification of substantially similar unsecured claims is improper when it serves only to manufacture an impaired consenting class under § 1129(a)(10).
- Differences in creditor motivations, without meaningful differences in claim rights or priority, do not justify separate classification.
- A Chapter 11 case may be dismissed when the debtor cannot propose a confirmable plan, including after repeated failed confirmation efforts in a single-asset case.

## Conclusion

The court rejected a modified Chapter 11 plan that split substantially similar unsecured claims to satisfy § 1129(a)(10), struck the plan under a restrictive classification approach, denied confirmation for lack of an accepting impaired class, and dismissed the case for inability to effectuate a reorganization plan.


In re Bloomingdale Partners, 170 B.R. 984 (Bankr. N.D. Ill. 1994)