Eat Dirt Plan

“A Chapter 11 plan under which a debtor or other plan proponent proposes to transfer some of the lender’s collateral to the lender as payment in full of the lender’s claim, while the debtor keeps the remainder of the lender’s collateral free of any claim by the lender.

The credit amount is set by the debtor’s plan and approved by the court rather than by the results of an actual sale of the property. This creates the risk that the credit to the lender’s claim will be greater than the value the lender can realize from the property. If the lender objects to this treatment, the plan cannot be confirmed unless the bankruptcy court finds that the debtor’s “dirt for debt” proposal furnishes the lender the “indubitable equivalent” of its claim—a finding that many courts are reluctant to make because of the inherent difficulties in estimating the value of the lender’s collateral.”

This definition is courtesy of our friends at Polsinelli who publish the Devil’s Dictionary of Bankruptcy Terms. You can access the Devil’s Dictionary here.

« Back to Glossary