Law School Case Brief
Dewsnup v. Timm - 502 U.S. 410, 112 S. Ct. 773 (1992)
The United States Supreme Court is reluctant to accept arguments that would interpret the Bankruptcy Code, however vague the particular language under consideration might be, to effect a major change in pre-Code practice that is not the subject of at least some discussion in the legislative history.
Petitioner Dewsnup, the debtor in a case under Chapter 7 of the Bankruptcy Code, filed an adversary proceeding, contending that the debt of approximately $120,000 that she owed to respondents exceeded the fair market value of the land securing the debt and that, therefore, the Bankruptcy Court should reduce respondents' lien on the land to the land's fair market value pursuant to 11 U. S. C. § 506(d), which provides that a lien is void "to the extent that [it] secures a claim against the debtor that is not an allowed secured claim." Dewsnup reasoned that respondents would have such an "allowed secured claim" only to the extent of the judicially determined value of their collateral, since, under § 506(a), "an allowed claim of a creditor secured by a lien on property in which the estate has an interest . . . is a secured claim to the extent of the value of such creditor's interest in the estate's interest in such property." The court determined that the then value of the land in question was $39,000, but refused to grant the requested relief and entered a judgment of dismissal with prejudice. The District Court and the Court of Appeals affirmed.
Was the use of the term "allowed secured claim" ambiguous, thus, construing 11 U.S.C.S. § 506(d) inapplicable to a lien securing a claim that was fully allowed under 11 U.S.C.S. § 502?
The court affirmed a denial of Dewsnup's complaint to reduce, pursuant to 11 U.S.C.S. § 506(a), the amount of respondent creditors' lien on Dewsnup's real property to equal the fair market value of the property, and to declare void under 11 U.S.C.S. § 506(d) that portion of the lien which exceeded the value of the property. The court held that, because respondent's claim had been "allowed" and was "secured" by a lien, it was not voidable. 11 U.S.C.S. § 506(a) provided that a creditor's allowed claim, secured by a lien on property in which the estate had an interest, was a "secured claim" to the extent of the value of the collateral. 11 U.S.C.S. § 506(d) provided that to the extent that a lien secured a claim against a debtor that was not an "allowed secured claim," the lien was void. Dewsnup argued that the portion of the lien that exceeded the value of the property was not an "allowed secured claim," and hence was void. The court held that the use of the term "allowed secured claim" was ambiguous, and construed 11 U.S.C.S. § 506(d) as not to apply to a lien securing a claim that was fully allowed under 11 U.S.C.S. § 502.
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