11 USC 1126: Ballots, Impaired Classes, and Cramdown

A Chapter 11 plan meets its voting requirements when each impaired class of claims returns acceptances from creditors holding at least two-thirds in dollar amount and more than half in number of the allowed claims that actually voted, and at least one impaired class of claims (excluding insiders) votes yes. Equity classes accept by a two-thirds dollar vote alone. If a class rejects, the plan is not automatically dead: the court can still confirm it through cramdown under § 1129(b) if the plan is fair and equitable and does not discriminate unfairly.

Who Gets a Ballot

Only holders of “allowed claims” or “allowed interests” vote. Under § 1126(a), any holder of a claim or interest allowed under § 502 may accept or reject the plan.¹ A claim is allowed if no one has objected, or if the court has ruled on the objection. Disputed, contingent, and unliquidated claims generally cannot vote unless the court intervenes.

When a claim is under objection, the court can temporarily allow it for voting purposes under Federal Rule of Bankruptcy Procedure 3018(a)(4), fixing a dollar amount for the vote without permanently resolving the dispute.² This keeps a strategic objection from silencing a creditor.

Impairment decides who actually votes. A class is impaired if the plan changes any legal, equitable, or contractual right the holders currently have.³ Two categories skip the ballot entirely:

An unimpaired class is conclusively presumed to accept, and no solicitation is required.
A class that receives nothing under the plan is deemed to reject and does not vote.¹

Everyone else in an impaired class with any recovery gets a ballot. Before ballots go out, though, the plan must sort all claims and interests into classes of “substantially similar” claims under § 1122. Classification is a distinct issue from voting, but it sets the boundaries within which the voting math is calculated.

The Voting Math

The thresholds differ for creditor classes and equity classes, and the difference is easy to miss.

Creditor Classes

A class of claims accepts the plan if creditors holding at least two-thirds in dollar amount and more than one-half in number of the allowed claims in that class vote in favor. Both tests must be met. The denominator counts only creditors who actually cast a ballot, not every creditor in the class.¹ One large creditor can carry the dollar test and still lose the headcount test if enough smaller creditors vote no.

Equity Classes

A class of interests accepts if holders of at least two-thirds in amount of the allowed interests in that class vote in favor. There is no headcount requirement for equity.¹

Creditors Who Don’t Return a Ballot

Courts split on non-voters. Some exclude them from the calculation entirely, reasoning that the statutory math only works with actual votes in the denominator. Others treat a silent impaired class as one that has not accepted the plan, blocking consensual confirmation under § 1129(a)(8). The safe assumption for any plan proponent: unreturned ballots hurt, and aggressive follow-up matters.

At Least One Impaired Class Must Accept

Even when the other confirmation requirements are met, the court cannot confirm a plan unless at least one impaired class of claims has voted to accept it. Insider votes do not count toward that requirement.⁴ This is the rule that stops a debtor from ramming through a plan that no genuinely independent creditor supports.

Insiders (directors, officers, controlling persons, and affiliates) are not barred from voting.⁵ Their ballots can be tallied inside a class, but they cannot supply the impaired-class acceptance that § 1129 requires. A plan that only passes because insiders tipped a class into “yes” territory will not clear that hurdle.

Disclosure Before Any Vote Is Solicited

No one can solicit votes until the court approves a disclosure statement containing “adequate information.” The standard is whether the disclosure gives a hypothetical reasonable investor enough detail to make an informed judgment, considering the debtor’s history, financial condition, and potential tax consequences.⁶

The disclosure statement and the plan (or a summary) must reach every creditor and interest holder before solicitation begins. The court holds a hearing on the disclosure statement with at least 28 days’ notice to parties in interest.⁷ If a creditor later attacks the vote by showing the disclosure was inadequate, the court can invalidate the entire solicitation and require the debtor to start over.

When the Court Throws Out a Vote

Under § 1126(e), the court can “designate” (disqualify) the vote of any entity whose acceptance or rejection was not in good faith, or whose vote was solicited or procured improperly.¹ A designated vote drops out of the tally entirely.

The statute does not define “bad faith,” and courts take a fact-specific approach. Votes typically get thrown out when a creditor uses obstructive tactics to extract better treatment than similarly situated creditors, votes for some advantage unrelated to its claim, or acquires claims specifically to sink the debtor’s reorganization. In DISH Network Corp. v. DBSD North America, Inc., the Second Circuit upheld the designation of DISH’s vote after finding that DISH, a competitor, had acquired its claims primarily to block the debtor’s plan rather than to protect a legitimate creditor interest.⁸

Designation is treated as an extraordinary remedy, and the party seeking it bears a heavy burden. A creditor voting in its own economic self-interest, even selfishly, is not automatically acting in bad faith. The line is crossed when the motive goes beyond protecting the claim and aims at destroying the debtor, gaining a competitive edge, or extracting side benefits other creditors don’t share.

If the Plan Changes Mid-Vote

Plans rarely survive contact with creditors unchanged. Under § 1127(a), the proponent can modify the plan at any time before confirmation as long as the modified plan still meets classification and content requirements. The modified version becomes “the plan.”⁹

Whether earlier votes still count depends on the size of the change. Under Bankruptcy Rule 3019(a), a creditor who accepted the original plan is deemed to have accepted the modified plan unless the court finds the modification adversely changes the treatment of that creditor’s claim or interest.¹⁰ If the court finds adverse changes, affected creditors get new disclosure materials and another chance to vote. Minor tweaks that clarify ambiguities or add non-material detail generally do not trigger re-solicitation.

Cramdown When a Class Rejects

When one or more impaired classes reject the plan, confirmation is not necessarily lost. Under § 1129(b), the court can confirm over a dissenting class through cramdown if the plan does not discriminate unfairly against that class and is “fair and equitable” with respect to it.⁴ Every other § 1129(a) requirement must still be satisfied, including that at least one impaired class of claims voted yes (excluding insiders).

What “fair and equitable” requires depends on the type of class:

For secured claims, the plan must let secured creditors keep their liens and receive deferred cash payments worth at least the value of their collateral, provide for a sale of the collateral with liens attaching to proceeds, or deliver the “indubitable equivalent” of their claims.
For unsecured claims, each holder must receive property equal in value to the full allowed amount of the claim, or no junior creditor or equity holder can receive anything under the plan. This is the absolute priority rule.
For equity interests, each holder must receive property equal to the greatest of any fixed liquidation preference, any fixed redemption price, or the value of the interest, or no junior interest holder can receive anything.⁴

The absolute priority rule often decides whether equity holders keep anything. In In re Armstrong World Industries, Inc., the Third Circuit affirmed that distributing warrants to equity holders over the objection of unpaid unsecured creditors violated the rule.¹¹

Feasibility: The Court’s Independent Check

Winning enough votes is necessary but not sufficient. The court must independently determine that confirmation is “not likely to be followed by the liquidation, or the need for further financial reorganization” of the debtor, unless the plan itself proposes liquidation.⁴ Courts apply a “reasonable assurance of commercial viability” standard, not a guarantee of success. A plan built on optimistic revenue projections with no track record to support them will face serious skepticism at the confirmation hearing, no matter how the vote came out.

Subchapter V Does Not Require Creditor Acceptance

Small business debtors who qualify for Subchapter V of Chapter 11 operate under a different framework. Creditors still receive ballots, but creditor acceptance is not required for confirmation. Under § 1191(b), if the plan meets all other confirmation requirements and is fair and equitable, the court can confirm it even without any impaired class voting in favor.¹² The Subchapter V fairness standard requires the debtor to commit all projected disposable income over three to five years to plan payments, giving creditors a different form of protection than the traditional voting rules provide. Creditors in a Subchapter V case also cannot propose their own competing plan. If a business qualifies, this route sidesteps the expense and uncertainty of soliciting votes from hostile or disengaged classes.

1
Office of the Law Revision Counsel. 11 USC 1126 – Acceptance of Plan
2
Legal Information Institute. Federal Rules of Bankruptcy Procedure Rule 3018 – Accepting or Rejecting a Plan
3
Office of the Law Revision Counsel. 11 US Code 1124 – Impairment of Claims or Interests
4
Office of the Law Revision Counsel. 11 US Code 1129 – Confirmation of Plan
5
Legal Information Institute. 11 US Code 101(31) – Insider Definition
6
Office of the Law Revision Counsel. 11 US Code 1125 – Postpetition Disclosure and Solicitation
7
Legal Information Institute. Rule 3017 – Hearing on a Disclosure Statement and Plan
8
Justia. DISH Network Corp. v. DBSD North America, Inc.
9
Office of the Law Revision Counsel. 11 US Code 1127 – Modification of Plan
10
Legal Information Institute. Federal Rules of Bankruptcy Procedure Rule 3019 – Modifying a Plan
11
Justia. In Re Armstrong World Industries, Inc.
12
Office of the Law Revision Counsel. 11 USC 1191 – Confirmation of Plan