## Facts

- A.P. Hallum and Betty Jean Hallum, operating as Mountain Creek Nursery, filed a Chapter 11 case.
- The United States, through the Farmers Home Administration (FmHA), filed a claim for nearly $3,000,000, secured by deeds of trust on real property and security interests in equipment, crops, and livestock.
- The collateral value was approximately $1.4 million, leaving FmHA undersecured with an unsecured deficiency of roughly $1.6 million under § 506(a) bifurcation.
- The debtors proposed a Chapter 11 plan that did not provide full payment of FmHA’s unsecured deficiency claim.
- FmHA, the only secured creditor in its proposed class, gave notice of an intent to elect treatment under 11 U.S.C. § 1111(b)(2) so its entire allowed claim would be treated as secured for plan purposes.

## Issues

1. Whether an undersecured secured creditor that is the sole member of its class may make the § 1111(b)(2) election to have its entire allowed claim treated as secured in a Chapter 11 plan.

## Decision

- The court denied FmHA’s attempted § 1111(b)(2) election.
- The court held that § 1111(b)(2) requires an election by a “class” of secured claims and is not available to a single creditor that constitutes the entire class.
- As a result, FmHA’s claim remained bifurcated into a secured claim equal to collateral value and an unsecured deficiency claim for the balance.

## Legal Principles

- The § 1111(b)(2) election is a class right conferred on “a class of secured claims,” not an individual right exercisable by a lone creditor.
- When an undersecured creditor is the only member of its secured class, it cannot invoke § 1111(b)(2) to recharacterize the full allowed claim as secured for confirmation purposes.
- Absent a valid § 1111(b)(2) election, an undersecured creditor’s claim is treated as secured only to the extent of collateral value, with the remainder treated as unsecured under § 506(a).

## Conclusion

The bankruptcy court held that § 1111(b)(2) operates as a class election and therefore could not be exercised by FmHA because it was the only secured creditor in its class, leaving its claim split into secured and unsecured portions for plan treatment.


In re Hallum, 29 B.R. 343 (Bankr. E.D. Tenn. 1983)