Here, a secured creditor objected to confirmation of debtors’ Chapter 13 plan, contending that the value assigned to a car, in which creditor held a security interest, was too low.

The debtors valued their vehicle at $3,500 and proposed to “cram down” this value to the secured lender, who was owed more than $11,000. Secured creditor alleged the vehicle’s value was at least $5,000, and a witness for the creditor testified that he would pay $5,000 for the vehicle at an auction.

Section 1325(a)(5)(B)(ii) of the Bankruptcy Code requires that a Chapter 13 plan provide for a creditor to receive value at least equal to the amount of the creditor’s allowed secured claim.

The amount of an allowed secured claim is determined under 11 U.S.C. 506, and, in most Circuits, automobiles in Chapter 13 plans are generally valued at wholesale rather than retail value. The wholesale value in this case was determined by the court to be $5,000.

EDITOR’S COMMENT

Debtors’ attorneys are regularly undervaluing the creditor’s collateral. If the creditor does not object to debtors’ proposed “cram down” figure, the court may confirm the Chapter 13 cram down without further review.

Creditors must object to debtors’ valuation of collateral and obtain a professional appraisal in order to force the debtor to pay the actual fair market value (albeit wholesale).

Author: Charles R. Harroun, Attorney at Law