Introduction

            “[I]t is unsettled whether a secured tax claim may be classified for purposes of voting and cram down.”[1]The status of a secured tax claim, whether it is as a class with voting rights or not, has large implications for those determining how to classify creditors during a reorganization plan. If a secured tax claimant is allowed a class, then the best strategy may be to segregate the secured tax claim from all other claims, and impair it to the extent allowed by statute. If, however, a secured tax claimant is not allowed to be a class, then the time spent classifying, impairing, and soliciting votes related to the claim can be spent on other areas.

            The ability of a secured tax claim to occupy a class is especially relevant to those reorganizations that need to invoke a cram down.[2]For the court to confirm such a plan, it must have an impaired non-insider class vote for the plan, which a class composed of secured tax claims may act as.[3]However, this is an issue the courts are split on, with a number of districts lining up on each side of the issue, using various arguments to fuel the debate.[4]During this discourse, two main points of contention have emerged; the first focusing on the policy of reorganization classes, the second focusing on the statutory language. Each area is mired in its own inconclusiveness, resulting in even more areas in which the courts can disagree.

            This Paper will explore the current split among the courts in Part I.[5]Part II explores the two main point of contention in greater depth: policy[6]and statutory language.[7]In Part III, I propose not only how the courts should weigh the two issues discussed in Part II, but also how the courts should answer each question.[8]

[1]            In re Mangia Pizza Investments, 480 B.R. 669, 678 (W.D. Tex. 2012)

[2]           “Cram down” is a term for when a court confirms a plan of reorganization over the dissenting votes of some classes. Erik Weiting Hsu, Recognizing Impaired Accepting Class of Secured Tax Claims, 31-May Am. Bankr. Inst. J. 48, 48 (2012).

[3]           It is hard to see why a secured tax claim class would vote against a plan, as discussed in Part II.

[4]           See discussion infra Part I.

[5]           See discussion infra Part I.

[6]           See discussion infra Part II.A.

[7]           See discussion infra Part II.B.

[8]           See discussion infra Part III.