Bankr. W.D.N.C.: In re Joiner – §1111(b) Election Survives Subchapter V Lien Modification Rights

Summary:

In In re Joiner, Case No. 25-30396 (Bankr. W.D.N.C. Oct. 2 2025) (Judge Ashley Austin Edwards), the court addressed the intersection between Subchapter V’s debtor-friendly lien modification authority under § 1190(3) and a creditor’s long-standing right under § 1111(b)(2) to elect to have an undersecured claim treated as fully secured.

Facts:

Joseph and Krista Joiner filed under Subchapter V, personally guaranteeing a $1 million SBA-backed business loan from Pinnacle Bank that was also secured by their Charlotte residence. Pinnacle filed a proof of claim for roughly $1.2 million, asserting a secured portion of $463,768 based on an $805,000 appraisal, after accounting for a senior Truist lien of $341,000.

When Pinnacle elected under § 1111(b)(2) to treat its entire claim as secured, the Joiners objected, arguing that § 1190(3) — which allows an individual Subchapter V debtor to modify a lien on a principal residence if the loan proceeds were primarily used for the small business — took precedence and rendered § 1111(b) inapplicable. Pinnacle countered that § 1111(b) applies in all Chapter 11 cases, that § 1181(a) lists the provisions inapplicable to Subchapter V and does not exclude § 1111, and that Congress intended both sections to coexist.

Holding:

Judge Edwards overruled the debtors’ objection, holding that § 1190(3) does not override a creditor’s right to make a § 1111(b) election. Citing Collier on Bankruptcy and In re VP Williams Trans, LLC, 2020 WL 5806507 (Bankr. S.D.N.Y. Sept. 29 2020), the court emphasized that § 1181(a)’s silence regarding § 1111 indicates Congress meant for the election to remain available in Subchapter V cases. The court also noted that Pinnacle’s loan might not even qualify under § 1190(3), as it appeared secured by more than just the residence.

Commentary:

This decision marks the first published Western District of North Carolina ruling squarely addressing whether an individual Subchapter V debtor’s new lien-modification power can negate an undersecured creditor’s § 1111(b) rights — and answers “no.”

The reasoning mirrors traditional Chapter 11 practice: § 1111(b) protects secured creditors from undervaluation risk by allowing them to receive payments equal to their total claim, while § 1190(3) merely expands which claims a Subchapter V debtor may modify. Judge Edwards viewed the two provisions as co-existing, not conflicting — much as §§ 1123(b)(5) and 1111(b) have co-existed since 1978.

Practice Pointer:

For Subchapter V debtor’s counsel, this means that even when § 1190(3) allows modification of a lien on a principal residence, an undersecured creditor can still invoke § 1111(b) and require the plan to treat its full claim as secured. That can substantially increase plan payment obligations and alter feasibility calculations. Before proposing a § 1190(3) modification, counsel should:

• Confirm collateral scope. If the loan is secured by more than the residence, § 1190(3) may not apply at all.

• Anticipate § 1111(b) elections. Run feasibility models assuming full-claim treatment.

• Negotiate or value early. Early stipulations or agreed valuations can mitigate post-election surprises.

For creditors, Joiner reaffirms that the § 1111(b) election remains a powerful tool—even in the more debtor-friendly confines of Subchapter V.