CRAM DOWNS IN CHAPTER 11: 1129 AND 1111(b)(2)

Imagine that the debt is $200,000 and that it is secured by a first lien on real property worth $150,000. If the undersecured creditor does not make the section 1111(b)(2) election, you can strip the lien down to the $150,000 value of the real property and pay that $150,000 off with interest over whatever period of time the court will allow (probably at least fifteen years, I'd think, but it may depend on the condition of the collateral and on the expected financial stability of the reorganized debtor). Assuming you use 1129(b)(2)(A)(i), the plan will have to let the creditor retain its lien on the property for the amount of the allowed secured claim ($150,000), will have to provide for cash payments over time that have a present value as of the effective date of the plan equal to the value of the lien ($150,000) (which means you will have to provide for payment of the $150,000 with interest over a period of time), and will have to provide for cash payments (including both principal and interest) that total at least $150,000 (which will obviously be satisfied because there is no way, if you don't have a time machine, to make payments with a present value of $150,000 without paying at least 150,000 total dollars of principal and interest).

The language of (b)(2)(A)(i) is complex due to the possibility that the undersecured creditor will make the section 1111(b)(2) election.  

If the unsecured creditor makes the section 1111(b)(2) election then you have to let the creditor keep a lien for the entire amount of its $200,000 debt (because the whole $200,000 will be treated as an allowed secured claim), and you have to provide for the total of all the payments to be at least $200,000 (because the allowed secured claim will be $200,000), but the present value of the payments need not be more than $150,000 (because that continues to be the value of the lien -- a lien cannot be worth more than the value of the collateral, and thus the making of the section 1111(b)(2) election does not increase the value of the lien). Interest payments made under the modified mortgage are permitted to count toward the $200,000 in total cash payments. Thus, as long as the court will let you make payments over a long enough time period, you can meet the $200,000 total payment requirement without having to pay more than $150,000 in present value. That means the making of the election usually does not require you to provide larger payments in the plan. But if the reorganized debtor then wants to refinance or to sell the property free and clear in the next several years, the secured creditor can block the sale or refinancing unless it is paid the remaining amount that is not yet paid of the $200,000. That gives the secured creditor leverage to extract a payment in exchange for releasing its lien

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