Associates
Commercial Corp. v. RASH (1997)
Bankruptcy Law
Facts:
Respondent purchased a tractor for $73,700. Debtor filed a Chapter
13. Balance owed at filing was $41,171. §506 requires that the
claim is secured up to the value of the collateral and the rest is
unsecured. To be confirmed the plan had to meet §1325(a)(5).
Issue:
When a debtor, over a secured creditor’s objection, seeks to retain
and use the creditor’s collateral in a Chapter 13 Plan, is the
value of the collateral to be determined by 1) what the secured
creitor could obtain through a foreclosure sale of the property
(foreclosure value standard); 2) what the debtor would have to pay
for comparable property (replacement-value standard); or 3) the
midpoint between these two measurements?
Holding:
§506(a) directs application of the replacement-value standard. “The
price a willing buyer in the debtor’s trade, business, or situation
would pay a willing seler to obtain property of like age and
condition.”
Analysis:§1325(a)(5)
requires 1) acceptance of the plan by the creditor, §1325(a)(5)(A)
, 2) debtor surrenders the property, §1325(a)(5)(C), or the debtor
invokes the cram down provision of §1325(a)(5)(B). Cram down allows
the debtor to retain the property subject to the lien, but the debtor
must pay over the life of the plan, the TOTAL PRESENT VALUE of the
allowed secured claim.
Footnote
6: Whether replacement value is the equivalent of retail value,
wholesale value, or some other value will depend on the type of the
debtor and the nature of the property! Creditor should not receive
portions of the retail price, if any, that reflect the value of items
the debtor does not receive when he retains the vehicle. I.e.
warranties, reconditioning. Nor should the creditor gain from
modifications to the property. E.g. addition of accessories to a
vehicle to which a creditor’s lien would not extend under state
law.
*
§506(a)(2) codified this rule essentially
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