OCTOBER TERM, 1996
Syllabus
certiorari to the united states court of appeals for the fifth circuit
No. 96-454. Argued April 16, 1997—Decided June 16, 1997
Petitioner Associates Commercial Corporation (ACC) holds a loan and lien on a tractor truck purchased by respondent Elray Rash for use in his freight-hauling business. Elray and Jean Rash, also a respondent, filed a joint petition and repayment plan under Chapter 13 of the Bankruptcy Code (Code), listing ACC as a secured creditor. Under the Code, ACC's claim for the $41,171 balance owed on the truck was secured only to the extent of the value of the collateral; its claim over and above that value was unsecured. See 11 U. S. C. § 506(a). The Rashes could gain confirmation of their Chapter 13 plan only if ACC accepted it, if the Rashes surrendered the truck to ACC, or if the Rashes invoked the so-called "cram down" provision. See § 1325(a)(5). The cram down option allows the debtor to keep the collateral over the objection of the creditor; the creditor retains the lien securing the 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 collateral, see § 1325(a)(5)(B)(ii). The value of the allowed secured claim is governed by § 506(a) of the Code. The Rashes invoked the cram down power, proposing to keep the truck for use in the freight-hauling business. ACC objected to the plan, sought to repossess the truck, and disputed the value the Rashes had assigned to the truck. At an evidentiary hearing held to resolve the dispute, ACC maintained that the proper valuation was the price the Rashes would have to pay to purchase a like vehicle (the replacement-value standard), estimated to be $41,000. The Rashes, however, maintained that the proper valuation was the net amount ACC would realize upon foreclosure and sale of the collateral (the foreclosure-value standard), estimated to be $31,875. The Bankruptcy Court adopted the Rashes' valuation figure and approved the plan. The District Court and the Fifth Circuit affirmed.
Held: Under § 506(a), the value of property retained because the debtor has exercised Chapter 13's "cram down" option is the cost the debtor would incur to obtain a like asset for the same proposed use. Pp. 960-965. (a) The words "the creditor's interest in the estate's interest in such property" contained in the first sentence of § 506(a) do not call for the foreclosure-value standard adopted by the Fifth Circuit. Even read in
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