## Facts

- Ultra Petroleum Corporation and affiliates filed Chapter 11 in 2016 after a commodity price collapse left them overleveraged.
- Commodity prices rebounded during the case, leaving Ultra solvent by the time it proposed a plan.
- Unsecured creditors held claims under unsecured notes (2008–2010) and a revolving credit facility (2011), guaranteed by related entities.
- Ultra’s plan placed the note and revolver claims in one class and proposed to pay:
  - 100% of allowed principal;
  - minimal prepetition interest; and
  - postpetition interest at the federal judgment rate rather than a higher contractual default rate.
- The plan did not pay a contractual “make-whole” amount allegedly triggered by acceleration of the notes.
- Creditors argued the make-whole and postpetition interest at the contractual rate were required by contract and state law; withholding them “impaired” the class, entitling creditors to vote and object as impaired creditors.
- Ultra argued that any disallowance or reduction of those components resulted from the Bankruptcy Code (especially the bar on “unmatured interest” in § 502(b)(2)), so the plan left creditors “unimpaired” by paying the full amount of the allowed claims.

## Issues

1. Whether a class is “impaired” under 11 U.S.C. § 1124(1) when a plan pays the full amount of the claim as allowed under the Bankruptcy Code, but less than what state law and the prepetition contract would provide absent bankruptcy.
2. Whether impairment under § 1124(1) depends on plan-based alteration of rights, as opposed to reductions that occur because the Bankruptcy Code itself limits or disallows parts of a claim.

## Decision

- The Fifth Circuit reversed the bankruptcy court’s impairment ruling.
- The court held that impairment under § 1124(1) is measured against the creditor’s rights in the claim as defined and limited by the Bankruptcy Code’s allowance/disallowance rules, not by the full amount that might be enforceable under state law outside bankruptcy.
- The court rejected the bankruptcy court’s approach that a class is unimpaired only if creditors receive everything they would receive under nonbankruptcy law, even if the Code independently disallows part of the asserted entitlement.
- The court remanded for further proceedings to determine:
  - whether the make-whole and claimed contractual postpetition interest were disallowed (including under § 502(b)(2)); and
  - what effect, if any, a solvent-debtor exception might have on payment of such amounts.

## Legal Principles

- “Impairment” under 11 U.S.C. § 1124(1) turns on whether a plan alters rights associated with a claim as that claim exists in bankruptcy after application of the Code’s allowance and disallowance provisions.
- Section 502 supplies the baseline for what constitutes an “allowed” claim; if the Code disallows a component (including “unmatured interest” under § 502(b)(2)), a plan does not impair a claim by refusing to pay the disallowed component.
- A plan impairs a claim when it modifies rights that remain part of the allowed claim after applying the Bankruptcy Code, not when the reduction stems from the Code itself.
- In solvent-debtor cases, questions about payment of additional amounts beyond the allowed claim (including make-wholes and postpetition interest at contractual rates) may require separate analysis, including potential equitable doctrines, and are not resolved solely by the impairment inquiry.

## Conclusion

The Fifth Circuit held that § 1124 impairment is determined by the Bankruptcy Code’s definition and limitation of allowed claims, so a plan that pays creditors in full on their Code-allowed claims does not “impair” them merely because state law or contract would have provided more absent bankruptcy; the court remanded to decide whether the disputed make-whole and interest components were allowable and whether a solvent-debtor exception applied.


In re Ultra Petroleum Corp., 943 F.3d 758 (5th Cir. 2019)