When Cramdown Applies
If one or more impaired classes reject the plan, consensual confirmation under 1191(a) is unavailable. The debtor must then seek confirmation under Section 1191(b) -- the cramdown provision.
Cramdown does not require any class to accept. The court confirms the plan over all objections if the requirements are met. However, at least one impaired class must have been given the opportunity to vote.
The Disposable Income Test
The central requirement of 1191(b) cramdown is that the plan must provide that all projected disposable income received during the 3-to-5-year period will be applied to plan payments.
"Projected disposable income" means income less amounts reasonably necessary for:
- Maintenance or support of the debtor or dependents
- Domestic support obligations
- Continuation, preservation, or operation of the business
Key difference from Chapter 13: Subchapter V does not use the means test or IRS expense standards. Courts look at actual projected income and actual reasonable expenses. This gives the court more flexibility and often produces a more realistic budget. See detailed calculation guide.
Fair and Equitable Standard
The plan must be "fair and equitable" with respect to each impaired class that has not accepted. For Subchapter V, this means:
- Secured claims: The plan provides for retention of the lien and deferred cash payments totaling at least the allowed secured claim amount
- Unsecured claims: The plan commits all projected disposable income (no absolute priority rule)
- No unfair discrimination: The plan does not discriminate unfairly among classes of similar priority
Discharge Under Cramdown
The cramdown discharge is narrower and later than the consensual discharge:
- Timing: Discharge enters after the debtor completes all plan payments, not upon confirmation
- Scope: Section 523(a) exceptions apply -- debts for fraud, willful injury, domestic support, taxes, and student loans survive discharge
This is a significant disadvantage of cramdown. Under consensual confirmation, the debtor gets an immediate, broad discharge. Under cramdown, the debtor must complete years of payments and still faces exceptions to discharge. Negotiate for consensual acceptance whenever possible.
For detailed analysis: section1192.org -- Subchapter V cramdown guide
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