Non-Cash Payments for Unsecured Claims in Bankruptcy

October 2, 2024

Payment of Unsecured Claims: Non-Cash Considerations In general, unsecured claims in bankruptcy are paid out in cash, but there are exceptions and considerations where non-cash payments may be applicable:

Plan Provisions: In Chapter 11 and Chapter 13 cases, the plan may provide for non-cash payments under specific circumstances. For example, a plan might allow for the distribution of securities or other assets to unsecured creditors. 23
Securities in Lieu of Cash: In some Chapter 11 cases, unsecured creditors may receive securities, such as stocks or bonds, instead of cash. This is particularly common in cases where the debtor is reorganizing and issuing new securities as part of the plan. 34
Asset Distributions: In Chapter 7 cases, if there are insufficient funds to pay all unsecured claims, the trustee may distribute assets other than cash, such as property or equipment, to satisfy these claims. However, this is less common and typically requires specific court approval. 16
Settlement Agreements: Unsecured creditors may agree to accept non-cash payments as part of a settlement agreement. This could include accepting assets, services, or other forms of compensation in lieu of cash. 4

In summary, while cash is the most common form of payment for unsecured claims, there are situations where non-cash payments may be used, particularly in reorganization plans or through settlement agreements. However, these arrangements must comply with the Bankruptcy Code and any applicable court orders.