Valuation of Collateral

Abstract

Two purposes animate the Bankruptcy Code's requirement that the bankruptcy court value consumer property that is subject to a security interest or mortgage. First, §506(a)(l) provides: An "allowed claim secured by a lien on property ... is a secured claim to the extent of the. value of such creditor's interest in the estate's interest in such property . . . and is an unsecured claim to the extent that the value of such creditor's interest ... is less than the amount of such allowed claim." Creditors vote in bankruptcy proceedings with dollars, but only unsecured dollar claims count as votes. Thus the bankruptcy court, at the outset of a case, must value the property that the creditor claims is subject to its lien in order to see how many unsecured dollar. votes the creditor has. Second, if the holder of an allowed secured claim objects to the confirmation of a Chapter 13 plan, then §1325(a)(5)(B)(iii)(I) provides that the plan must award to the creditor "the value, as of the :effective date of the plan, of property to be distributed under the plan .. : [that] is not less than the allowed amount of such claim." The court must therefore value the collateral· in order to decide how much a Chapter 13 plan must award to the secured creditor.