The debtors voluntarily filed for Chapter 13 bankruptcy. The debtors listed their mobile home (the “personal property”) as an asset on their Schedule A/B and valued it at $6,000. Schedule D indicated that the creditor held a lien on the personal property, securing a loan of approximately $33,401.57. The debtors’ proposed plan sought to bifurcate the creditor’s claim, treating $6,000 of the claim as secured and the remainder as a general unsecured claim. The creditor objected to the confirmation of the debtors’ plan, arguing that the proposed value was too low and attaching a home value report to support its objection to the $6,000 valuation. The court held an evidentiary hearing to determine the value of the personal property; however, there was little evidence presented. At the hearing, the debtors testified that the personal property had been purchased used and was in poor condition (windows broken, roof detached, and severe water damage that would all cost money to repair), and, while the debtors had not attempted to sell it and did not know of anyone trying to sell something similar, they believed the present value of the personal property was $6,000. Photographs submitted by the creditor reflected the condition described by the debtors. The creditor, however, relied on both the photographs and the value report to argue the value was higher than $6,000. The debtors objected to the home value report, and the creditor conceded that the value in the report was likely too high.
In In re Lamb, 665 B.R. 603 (Bankr. E.D.N.C. 2024), the bankruptcy court sustained the objection to confirmation and denied confirmation of the plan. The court first looked at how claims may generally be valued in connection with Chapter 13 plans. Section 1325(a)(5)(B) of the Bankruptcy Code provides a “cram down option,” which allows the debtor to retain the property over the creditor’s objection while the creditor retains its lien and receives payments over the life of the plan that total “the present value of the allowed secured claim…” Hurlburt v. Black, 925 F.3d 154, 159 (4th Cir. 2019); 11 U.S.C. § 1325(a)(5)(B). The allowed secured claim is the present value of the property at the time of the repayment plan’s effective date. Thus, a debtor may pay only the present value of the underlying collateral and treat any remainder as a separate unsecured claim. If a debtor seeks to “cram down” the plan, the court must then determine the value of the allowed secured claim (i.e., the collateral). For that reason, the court looked to Bankruptcy Code § 506(a)(2). Section 506(a)(2) provides that the “value with respect to personal property securing an allowed claim shall be determined based on the replacement value of such property as of the date of the filing of the petition,” and the “replacement value shall mean the price a retail merchant would charge for property of that kind considering the age and condition of the property.” 11 U.S.C. § 506(a)(2). The best method for determining replacement value should be left to the triers of fact to decide on a case-by-case basis, but before determining this, the court first found that the burden of proof fell on the debtor to establish that the “plan provide[d] for payments equal to the value of the collateral.” The court found that while the debtors’ testimony regarding the condition of the home was credible, the debtors never gave any basis for how they arrived at the $6,000 amount. The court further noted that the valuation needed to have “a clearly articulated rational basis,” whether it was based on an expert valuation, a NADA report (a generally accepted valuation basis for bankruptcy courts) as a starting point, or the value of similar personal property. Ultimately, the court found that the debtors failed to meet their burden of proof as to the personal property’s value for the cram down option and denied confirmation of the plan.
By Kristin Meurer [email protected]
Edited By Olivia Lewis [email protected]
Edited by Callighan Ard [email protected]
Edited By Hayden Mariott [email protected]