Associates Commercial Corporation v. Rash

520 U.S. 953 (1997)


Rash (D) purchased a Kenworth tractor truck for use in his freight-hauling business. D 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 P. D filed a joint petition and a repayment plan under Chapter 13. The balance owed to P was $41,171. P was listed in the bankruptcy petition as a creditor holding a secured claim. 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. D's Chapter 13 plan invoked the cram down power and pay P, over 58 months, an amount equal to the present value of the truck ($28,500).  P objected and claimed the secured amount of $41,171. P and D urged different valuation benchmarks. P maintained that the proper valuation was the price D would have to pay to purchase a like vehicle, an amount estimated to be $41,000. D maintained that the proper valuation was the net amount P would realize upon foreclosure and sale of the collateral, an amount their expert estimated to be $31,875. The Court agreed with D and fixed the amount at $31,875; the net amount P would realize if it exercised its right to repossess and sell the truck. A panel of the Court of Appeals for the Fifth Circuit reversed. On rehearing en banc, they affirmed the District Court, holding that P's allowed secured claim was limited to $ 31,875, the net foreclosure value of the truck. The court reasoned, the first sentence of § 506(a) requires that collateral be valued from the creditor's perspective. They reasoned that the foreclosure-value standard was consistent with the other relevant provisions of the Code, economic analysis, and the legislative history of the pertinent provisions. Courts of Appeals have adopted three different standards for valuing a security interest in a bankruptcy proceeding when the debtor invokes the cram down power to retain the collateral over the creditor's objection. Some followed a replacement-value approach. Other courts have settled on the midpoint between foreclosure value and replacement value. The Supreme Court granted certiorari.