7th Cir. Recognizes Unsecured Creditor Right to Assert Deficiency Claim Under 1111(b)

by Andrew J. Abrams

Summary: The Seventh Circuit Court of Appeals – in an issue of first impression for  this Circuit – concluded in the case In re B.R. Brookfield Commons No. 1 LLC, 735 F.3d 596, that an undersecured creditor with a second mortgage securing a non-recourse loan should nevertheless be treated as though the creditor had recourse against the Chapter 11 debtor. Relying upon the plain language of § 1111(b)(1)(A) of the Bankruptcy Code, the court affirmed the Eastern District of Wisconsin bankruptcy court’s decision allowing the creditor’s claim as valid because there was no dispute that the creditor had a valid lien against the debtor’s property, even though the mortgagee’s claim was not secured by the debtor’s real property.

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