Saturday, December 1, 2012

Associates Commercial Corp. v. RASH case brief

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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