What is the “Equal Treatment” Rule in a Chapter 11 Bankruptcy?
A recent bankruptcy case from September 2025, concerning the “equal treatment” rule, has been receiving significant attention among those who handle Chapter 11 bankruptcy cases and those who could be impacted by trending court decisions on the issue. If your business has been considering a Chapter 11 bankruptcy filing, it will be important to understand what the “equal treatment” rule entails and how it will impact your reorganization plan. Consider the following information from our South Florida business bankruptcy lawyers.
Section 1123(a)(4) of the Bankruptcy Code
Section 1123 of the US Bankruptcy Code concerns the required contents of a reorganization bankruptcy plan and applies to reorganization plans in Chapter 11 business bankruptcies. Specifically, under Section 1123(a)(4), a reorganization plan must “provide the same treatment for each claim or interest of a particular class, unless the holder of a particular claim or interest agrees to a less favorable treatment of such particular claim or interest.”
That language is often referred to as the “equal treatment” rule, but it may not necessarily mean what you would assume. It does not necessarily mean that all creditors must receive equal payments or equal value. It also only relates specifically to equal treatment of interests or claims that are in the same class and does not apply broadly to the equal treatment of all claims or interests in a Chapter 11 reorganization plan.
What Does “Equal Treatment” of Creditors Mean in Practice?
Different federal courts have interpreted the language of Section 1123(a)(4). Recently, in the US District Court for the Southern District of Texas’s decision in the ConvergeOne case (the case of In re Ad Hoc Group of Excluded Lenders), the court ruled that the bankruptcy court violated this section of the Bankruptcy Code by confirming a reorganization plan that gave certain lenders in the same class of creditors the right to take part in a backstopping agreement that would be lucrative to those particular creditors. That constituted unequal treatment under Section 1123(a)(4), that court said.
In other cases, courts have had different takes on what is meant by equal treatment. Courts have concluded that the “equal treatment” rule is satisfied when claimants in the same class “have the same opportunity to recover,” rather than whether the claimants in the same class get the same thing in the reorganization plan. Some courts have expressly ruled that some creditors getting more favorable treatment does not necessarily violate the rule, depending on the circumstances.
The rule’s application can be complex, and as such, it is essential to discuss its application to your reorganization plan with a bankruptcy lawyer.
Contact a West Palm Beach Bankruptcy Attorney Today
Do you want to find out more about filing for Chapter 11 bankruptcy for your business? Or do you have specific questions about the “equal treatment” rule and its application to your reorganization plan? It is important to work with one of the experienced West Palm Beach bankruptcy lawyers at Kelley Kaplan Delaney & Eller, PLLC on any business reorganization bankruptcy filing, whether you are planning on a traditional Chapter 11 filing or want to learn about your business’s eligibility for a Subchapter V filing. Contact our firm today to have your questions answered and to begin working with one of our attorneys on your business bankruptcy case.
Source:
law.cornell.edu/uscode/text/11/1123
