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Assocs. Commer. Corp. v. Rash

Supreme Court of the United States

April 16, 1997, Argued ; June 16, 1997, Decided

No. 96-454

Opinion

 [*955]  [**1882]  [***154]    JUSTICE GINSBURG delivered the opinion of the Court. 1 

 We resolve in this case a dispute concerning the proper application of § 506(a) of the Bankruptcy Code when a bankrupt debtor has exercised the "cram down" option for which Code § 1325(a)(5)(B) provides. Specifically, ] 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 creditor could obtain through foreclosure sale of the property (the "foreclosure-value" standard); (2) what the debtor would have to pay for comparable property (the "replacement-  [*956]  value" standard); or (3) the midpoint between these two measurements? We hold that § 506(a) directs application of the replacement-value standard.

In 1989, respondent Elray Rash purchased for $ 73,700 a Kenworth tractor truck for use in [****7]  his freight-hauling business. Rash made a down payment on the truck, agreed to pay the seller the remainder in 60 monthly installments, and pledged the truck as collateral on the unpaid balance. The seller assigned the loan, and its lien on the truck, to petitioner Associates Commercial Corporation (ACC).

In March 1992, Elray and Jean Rash filed a joint petition and a repayment plan under Chapter 13 of the Bankruptcy Code (Code), 11 U.S.C. §§ 1301-1330. At the time of the bankruptcy filing, the balance owed to ACC on the truck loan was $ 41,171. Because it held a valid lien on the truck, ACC was listed in the bankruptcy petition as a creditor holding a secured claim. Under the Code, ACC's claim for the balance owed on the truck was secured only to the extent of the value of the collateral; its claim over and above the value of the truck was unsecured. See 11 U.S.C. § 506(a).

 To qualify for confirmation under Chapter 13, the Rashes' plan had to satisfy the requirements set forth in § 1325(a) of the Code. The Rashes' treatment of ACC's secured claim, in particular, is governed by  [***155]  subsection (a)(5). 2 ] Under this  [*957]  provision, a plan's proposed treatment of secured claims can be confirmed [****8]  if one of three conditions is satisfied: the secured creditor accepts the plan, see 11 U.S.C. § 1325(a)(5)(A); the debtor surrenders the property securing the claim to the creditor, see § 1325(a)(5)(C); or the debtor invokes the so-called "cram down" power, see § 1325(a)(5)(B). Under the cram down option, the debtor is permitted to keep the property over the objection of the creditor; the creditor retains the lien securing the  [**1883]  claim, see § 1325(a)(5)(B)(i), and the debtor is required to provide the creditor with payments, over the life of the plan, that will total the present value of the allowed secured claim, i.e., the present value of the collateral, see § 1325(a)(5)(B)(ii). The value of the allowed secured claim is governed by § 506(a) of the Code.

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520 U.S. 953 *; 117 S. Ct. 1879 **; 138 L. Ed. 2d 148 ***; 1997 U.S. LEXIS 3688 ****; 65 U.S.L.W. 4451; 97 Cal. Daily Op. Service 4527; 37 Collier Bankr. Cas. 2d (MB) 744; 30 Bankr. Ct. Dec. 1254; Bankr. L. Rep. (CCH) P77,409; 97 Daily Journal DAR 7497; 11 Fla. L. Weekly Fed. S 4

ASSOCIATES COMMERCIAL CORPORATION, PETITIONER v. ELRAY RASH ET UX.

Prior History:  [****1]  ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT, Reported at: 1996 U.S. App. LEXIS 18727.

Disposition: 90 F.3d 1036, reversed and remanded.

CORE TERMS

collateral, valuation, foreclosure, truck, cram, sentence, foreclosure-value, replacement-value, surrender, replacement, invoked

Bankruptcy Law, Types of Claims, Secured Claims & Liens, Claim Determinations, Contracts Law, Default, Foreclosure & Repossession, General Overview, Individuals With Regular Income, Plans, Cramdowns, Plan Confirmation, Confirmation Criteria, Nonconsensual Confirmations, Types of Commercial Transactions, Secured Transactions, Claims, Consensual Confirmations