IM IN A CHAPTER 11 AND AN UNSECURED CREDITOR IS CLAIMING I DEFRAUDED AND EMBEZZLED FROM THEM. WHAT WILL HAPPEN. IT IS A CIVIL CLAIM AND MAY BE LITIGATED OUTSIDE THE BANKRUPTCY IF THE JUDGE GRANTS PERMISSION. IF I WERE TO LOSE THE CASE DOES THE CREDITORS CLAIM STILL BE LUMPED INTO THE UNSECURED CLASS OF CREDITORS. iF i HAD TO PAY HIM AS A PRIORITY CREDITOR I AM GOING TO HAVE TO LIQUIDATE. THERE ARE NO CRIMINAL COMPLAINTS JUST CIVIL.
You need to get a lawyer!
The above is general legal and business analysis. It is not "legal advise" but analysis, and different lawyers may analyse this matter differently, especially if there are additional facts not reflected in the question. I am not your attorney until retained by a written retainer agreement signed by both of us. I am only licensed in California. See also avvo.com terms and conditions item 9, incorporated as if it was reprinted here. Please visit my web site: www.avanesianlaw.com for more information about my services.
There are several complex issues that your question presents.
First and foremost, are you represented by an attorney? If not, there is nearly no possible way that you are going to navigate your way through a Chapter 11 case by yourself. If you are represented by an attorney, this question needs to be directed at he or she because he or she will have a much better handle on whether or not this claim is legitimate.
Second, there are numerous types of claims that are not dischargeable in bankruptcy. The classic examples are most types of taxes and student loans. Moreover, under Bankruptcy Code section 523(a)(4), claims for fraud are not dischargeable.
Third, they will not automatically have a "blocking position" when you propose a Chapter 11 Plan of Reorganization. However, a number of appellate court decisions have recently held that if you retain any exemptions under the Bankruptcy Code, that you violate the "absolute priority rule" under the Bankruptcy Code and cannot proposed a "cram down" plan.
If this all sounds complicated, it's because it is. You have to speak to an attorney that is experienced in handling Chapter 11 cases.
At the end of the day, disputes in bankruptcy, like every other area of law, usually work out best if the parties compromise. But without far more information that you have provided, there is no way to accurately answer your question. And, in fairness to you, there is no way that you can provide the information need to accurately answer your question on Avvo.
To answer your question a little more directly, you can still classify a claim that is non-dischargeable in the same class as general unsecured creditors claims, but you cannot keep any assets unless no one objects to your plan in Chapter 11 or if you pay your creditors in full. If a creditor wanted to take a hard-line, they could argue that you walking out of the Court with the clothes on your back would violate absolute priority because you retained assets without paying your creditors in full. Obviously, this is an extreme example, but it illustrates the need for experienced bankruptcy attorneys to negotiate a resolution on your behalf.
If you have to file for an individual Chapter 11, you have some significant assets to protect. You have a far more complex bankruptcy than the average person, invest some money in a good lawyer - it will pay off in the long run.
You should discuss your concerns with your attorney. If you are in a chapter 11 case, you should have an attorney. if you do not, please find one immediately. I cannot tell from your question if you have a creditor that is seeking to have the creditors debt declared non-dischargeable or if the creditor is seeking relief from the stay. How a debt gets classified is up to the attorney. It does appear that you have an aggressive creditor to deal with.