FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

In re: DAVID DOUGLAS TAYLOR; 

LINDA SUE TAYLOR,

Debtors, No. 08-60033

BAP No.

WW-07-1313- USAA FEDERAL SAVINGS BANK,  MkMoD Appellant,

ORDER AND

v. OPINION

DON THACKER, Trustee,

Appellee. 

Appeal from the Ninth Circuit

Bankruptcy Appellate Panel

Montali, Markell, and Dunn, Bankruptcy Judges, Presiding

Argued and Submitted

August 3, 2009—Seattle, Washington

Filed March 22, 2010

Before: Harry Pregerson, John T. Noonan and Carlos T. Bea,

Circuit Judges.

Opinion by Judge Bea

4617
COUNSEL

Lawrence Gary Reinhold, Weinstein & Riley, P.S., Akron,

Ohio, for the defendant-appellant. 

Thomas W. Stilley, Sussman Shank LLP, Portland, Oregon,

for the plaintiff-appellee.

ORDER

The opinion filed on February 26, 2010, is withdrawn. A

replacement opinion will be filed concurrently with this order.

OPINION

BEA, Circuit Judge:

In 2005, David and Linda Taylor bought a Toyota Camry

right before declaring bankruptcy. Their lender, USAA Federal Savings Bank (“USAA”), procured from the Taylors a

security interest in the car as collateral for the loan. USAA

4620 IN RE: TAYLOR
perfected its security interest 21 days after the Taylors purchased their car; USAA’s perfection was timely under Idaho

law, but one day late under federal bankruptcy provisions.1

The Taylors’ conveyance of a security interest to USAA was

then avoidable by the Taylors’ bankruptcy trustee, as a preferential transfer.2

 The trustee moved the bankruptcy court to

avoid the transfer and the court granted the motion.

1When a debtor declares bankruptcy before paying off his debt, the

creditor must “perfect” a security interest to enforce his interest and to preserve the priority of his claim. Perfection usually requires the creditor file

documents with a State to prove when the creditor received the security

interest. Under Idaho law, a creditor perfects a security interest in a vehicle by filing a “properly completed title application and all required supporting documents with the department [of transportation] or an agent of

the department.” Idaho Code § 49-510(1). The application for certificate

of title includes “a full description of the vehicle, including whether the

vehicle is new or used, together with a statement of the applicant’s title

and of any liens or encumbrances upon the vehicle, and the name and

address of the person to whom the certificate of title shall be delivered,

and any other information as the department may require.” Idaho Code

§ 49-504(1). Perfected security interests shall “take priority according to

the order in which the same are noted upon the certificate of title or

entered into the electronic records of the department.” Idaho Code § 49-

510(3). Under the federal Bankruptcy Code, a security interest is perfected

when the creditor has satisfied the requirements of perfection under state

law. See 11 U.S.C. § 547(c)(3)(B), Fidelity Financial Services, Inc. v.

Fink, 522 U.S. 211, 214 (1998) (holding a security interest is perfected for

federal bankruptcy purposes if the creditor satisfies the requirements for

perfection under state law). 

Under Idaho law, a creditor must file the title application and all supporting documents within 30 days after the delivery of the vehicle. Idaho

Code § 49-504. At the time the Taylors purchased their vehicle, the federal

Bankruptcy Code required creditors to perfect their security interests

within 20 days. 11 U.S.C. § 547(c) (discussed infra note 6). 

2Preferential transfers are usually transfers of a debtor’s interest in property to a creditor on the eve of the debtor’s bankruptcy. These transfers are

preferential because the insolvent debtor chooses which creditor to repay

instead of following the order of priority established by the relevant bankruptcy laws. See 11 U.S.C. § 547. 

IN RE: TAYLOR 4621
We address a recurring question in many bankruptcies:

What should be the remedy when a court holds that a security

interest is avoidable as a preferential transfer? When a bankruptcy court avoids a preferential transfer, it may award the

bankrupt estate either the actual transferred property or the

value of the transferred property. 11 U.S.C. § 550(a). Here,

the bankruptcy court declined to award the estate the transferred property: the security interest. If it had done so, then

the bankruptcy trustee could simply have canceled the security interest, thus converting the auto loan into an unsecured

debt owed to USAA. Instead, the bankruptcy court opted to

award the estate the “value” of the security interest. Hence,

because the bankruptcy court left the original transaction

untouched, USAA kept its valid, enforceable secured interest

in the Camry. But, the bankruptcy court also awarded the

Taylors’ bankruptcy estate something more. It was that

decision—to award the estate the value of the security interest

by means of a new forced loan—that led the bankruptcy court

down the proverbial rabbit hole. 

Once the bankruptcy court decided to award the value of

the security interest, it faced the question: What is the value

of a security interest, once the security interest is separated

from its underlying loan? The bankruptcy court determined

that the value of the security interest was the full value of the

initial loan. Therefore, the bankruptcy court ordered USAA to

loan the estate $18,020 plus interest; this amount was in addition to the $18,020 USAA initially loaned the Taylors when

they purchased the Camry. Upon payment of the additional

$18,020, USAA became entitled to file a non-priority unsecured claim for the additional amount of $18,020 plus interest, which was loaned under the bankruptcy court’s order. The

bankruptcy court’s determination of the value of the security

interest was clearly erroneous. We agree that the security

interest may have had some value greater than zero; there is,

however, no evidence in this record to support the bankruptcy

court’s finding that the value of the security interest equaled

4622 IN RE: TAYLOR
the amount of the original $18,020 loan at the time USAA

perfected its security interest.

Furthermore, because the value of USAA’s security interest

is not readily ascertainable, the bankruptcy court erred when

it awarded the estate an estimate of that value instead of the

transferred property—the security interest. Therefore, we

reverse the bankruptcy court’s decision and remand with

instructions for the bankruptcy court to declare USAA’s

security interest void. The ownership of the Camry will not be

subject to the lien created by the security interest. USAA will

retain an unsecured claim against the estate for $18,020, the

value of the loan. For reasons discussed below, we also

remand to the bankruptcy court to determine whether USAA

must return the payments it received from the Taylors, and if

so, to whom.

I. Factual Background

A. The Purchase

On August 30, 2005, David and Linda Taylor, a married

couple, purchased and took possession of a 2006 Toyota

Camry from Gresham Toyota, Inc. (“Gresham”), a dealership

in Portland, Oregon. The Taylors purchased the car for

$19,500. 

USAA loaned the Taylors $18,020; the Taylors in turn paid

the $18,020 to Gresham. The amount of the loan was equal

to the purchase price of the car less the agreed trade-in value

of the Taylors’ 1992 Lincoln Town Car, which the Taylors

sold to Gresham as part of the purchase of the Camry. In September 2005, the Taylors began to make monthly payments

on their loan to USAA.3

3The record does not show the amount of the monthly payment. Following the Taylors’ petition in bankruptcy, they arranged to continue to pay

the loan from their post-petition income that was not part of the estate;

therefore, they did not default. It is not clear on the record before us if any

payments came from the estate itself. 

IN RE: TAYLOR 4623
The Taylors, as part of the loan agreement, granted USAA

a “purchase money security interest” in the car.4 Under the

Bankruptcy Code, a security interest is a lien created by an

agreement (as opposed to by statute). 11 U.S.C. § 101(51).5 A

“lien . . . means [a] charge against or interest in property to

secure payment of a debt or performance of an obligation.” 11

U.S.C. § 101(37).

To satisfy pre-existing debts, a trustee can avoid transfers

that take place within the 90 days before bankruptcy is filed.

11 U.S.C. § 547(b). There is an exception to this rule, however, for creditors who perfect a security interest within 20

days after a transfer for new value. 11 U.S.C. § 547(c)(3). A

security interest is perfected when the creditor has satisfied

the requirements of perfection under state law. Fidelity Financial Services, Inc. v. Fink, 522 U.S. 211, 214 (1998). Thus,

USAA had to satisfy all the requirements set out in Idaho

Code Sections 28-9-310 through 28-9-316 within 20 days

after the Taylors took possession of the Camry. Idaho Code

29-9-308(a); 11 U.S.C. § 547(c). USAA, however, made the

crucial mistake of being one day late in perfecting its security

interest. Accordingly, USAA failed to exempt the transfer

from being avoidable under the Bankruptcy Code. 

USAA failed to perfect the security interest within 20 days

4A purchase-money security interest is: “A security interest that is created when a buyer uses the lender’s money to make the purchase and

immediately gives the lender security by using the purchased property as

collateral (UCC § 9-103); a security interest that is either (1) taken or

retained by the seller of the collateral to secure all or part of its price or

(2) taken by a person who by making advances or incurring an obligation

gives value to enable the debtor to acquire rights in or the use of collateral

if that value is in fact so used. If a buyer’s purchase of a boat, for example,

is financed by a bank that loans the amount of the purchase price, the

bank’s security interest in the boat that secures the loan is a purchasemoney security interest.” BLACK’S LAW DICTIONARY (9th ed. 2009). 

5All future references to “Section” or “§” are to the Bankruptcy Code,

11 U.S.C. § 101, et seq., unless otherwise noted. 

4624 IN RE: TAYLOR
because it filed its initial application for title without a signed

affidavit of inspection, as required under Idaho law. See Idaho

Code Ann. § 49-510. On September 20, 2005, an inspection

officer from the Idaho Transportation Department inspected

the car and signed an affidavit of inspection. The same day,

an Application for Certificate of Title and the affidavit of

inspection were filed with the Idaho Transportation Department. USAA’s security interest was thus perfected under

Idaho law only on September 20, 2005—21 days after the

Taylors took possession of the car on August 30, 2005.

Despite the fact that USAA’s security interest was perfected

under state law, the bankruptcy trustee could still avoid the

transfer of the security interest because USAA failed to meet

the federal 20-day perfection requirement under § 547(c)(3).6

B. The Bankruptcy

On September 28, 2005, the Taylors filed a voluntary petition in bankruptcy under Chapter 7. A Chapter 7 bankruptcy

filing transfers title to the debtors’ nonexempt assets to a

court-appointed trustee, who endeavors to manage the assets

in a manner that will satisfy the creditors’ claims. 11 U.S.C.

§§ 701, 704. The bankruptcy court appointed Don Thacker as

the Taylors’ bankruptcy trustee.

On February 23, 2007, Thacker filed suit against USAA to

avoid the transfer of the security interest under 11 U.S.C.

6Before the bankruptcy court, USAA contended it perfected its security

interest when it filed its application with the Idaho Transportation Department on September 15, 2005 because Idaho permitted it a grace period of

an additional 20 days. See Idaho Code 49-510. The bankruptcy court held

the state law grace period did not apply to federal bankruptcy proceedings

regarding avoidance of a preferential transfer under § 547. See Fidelity

Financial Services, 522 U.S. at 221. The BAP affirmed. USAA’s briefs no

longer claim its security interest was perfected on September 15, 2005;

hence, USAA has waived that argument on appeal. 

IN RE: TAYLOR 4625
§ 547(b). Thacker moved for summary judgment, which the

bankruptcy court granted.7

On August 10, 2007, the bankruptcy court held the transfer

was avoidable. The bankruptcy court concluded that cancelling the security interest or transferring it to the trustee was

an insufficient remedy. Rather, the court concluded it must

award the estate the value of the security interest at the time

of the August 30, 2005 purchase of the car—the date the Taylors transferred the security interest in the car to USAA. To

that end, the bankruptcy court issued judgment against USAA

for $18,020, plus interest—a new $18,020 additional to the

$18,020 which USAA had already loaned the Taylors—and

graciously allowed USAA to file an unsecured debtor’s claim

for this second $18,020 loan plus interest, once USAA paid

that new loan’s proceeds to the estate.8 The net result was that

(1) the bankruptcy estate was allowed to keep the car and the

original loan obligation of $18,020 used to purchase the car;

(2) USAA was allowed to keep its valid lien, or security interest, in the car; (3) USAA was ordered to loan the bankruptcy

estate another $18,020; and (4) USAA received an unsecured

claim against the estate for the fresh loan of $18,020. At the

end of the day, USAA was both a secured creditor (against

all, including the bankruptcy estate) for one loan of $18,020

(less the payments the Taylors had made) and an unsecured

creditor for another, new debt of $18,020. 

7There does not seem to be any explanation for the seventeen month

delay between the date when the Taylors filed for bankruptcy and the date

when Thacker sued USAA. USAA has not raised any legal contention

based on this fact. 

8The court ordered USAA to pay interest on the $18,020 from November 21, 2005 through the date of entry of the judgment at 4.30% per

annum, and at the rate of 4.82% per annum after the date of entry of judgment until the judgment was paid. See Acequipa, Inc. v. Clinton (In re

Acequipa, Inc.), 34 F.3d 800, 818-19 (9th Cir. 1994) (holding prejudgment interest was available on the value of property ordered paid by

a creditor to a bankruptcy estate). 

4626 IN RE: TAYLOR
During proceedings before the bankruptcy court, USAA

contended that the correct remedy was simply to cancel the

security interest, i.e., to return the transferred property to the

estate. The bankruptcy court held that canceling the security

interest would not return the estate to the same position it

would have been in if the Taylors had not made the transfer

to USAA. The value of the security interest had diminished

because, first, the Taylors had made monthly payments on the

auto loan and, second, the car had depreciated in value

between the date of the purchase and the date of summary judgment.9

 The bankruptcy court rejected USAA’s proposed remedy of simply avoiding the security interest because that

remedy would leave USAA with a windfall in the amount of

the payments the Taylors had made since purchasing the car.

In granting judgment for the trustee, the bankruptcy court

found the value of the security interest at the time of the transfer was the full value of the secured loan. The bankruptcy

court authorized the following remedy:

JUDGMENT is entered in favor of plaintiff Don

Thacker and against defendant USAA Federal Savings Bank for the principal sum of $18,020.00,

together with interest thereon from November 21,

2005 through the date of entry of this judgment at

the rate of 4.30% per annum, and after the date of

entry of judgment at the rate of 4.82% per annum,

until paid, and execution shall issue therefor.

Thacker v. USAA Federal Savings Bank (In re Taylors) No.

07-04025-PBS (Bankr. W.D. Wash. Aug. 10, 2007). USAA

was also entitled under the judgment to file an unsecured

claim against the estate for the amount of judgment. USAA

does not dispute the calculation of interest payments on the

principal sum.

9On July 2, 2007, the Kelly Blue Book value of the car was between

$14,240 (trade-in) and $15,895 (private party). As of the date of Thacker’s

Motion for Summary Judgment, the Taylors still possessed the car. 

IN RE: TAYLOR 4627
The Bankruptcy Appellate Panel (“BAP”) affirmed. USAA

Federal Savings Bank v. Thacker (In re Taylors), 390 B.R.

654 (B.A.P. 9th Cir. 2008).

II. Standard of Review

This court reviews the decision of the BAP de novo. Aalfs

v. Wirum (In re Straightline Invs., Inc.), 525 F.3d 870, 876

(9th Cir. 2008). We review the bankruptcy court’s decision

for abuse of discretion: “The bankruptcy court’s conclusions

of law are reviewed de novo, and its findings of fact are

reviewed for clear error.” Id. In applying our abuse of discretion test, we first “determine de novo whether the [bankruptcy] court identified the correct legal rule to apply to the

relief requested.” United States v. Hinkson, 585 F.3d 1247,

1262 (9th Cir. 2009). If the bankruptcy court identified the

correct legal rule, we then determine whether its “application

of the correct legal standard [to the facts] was (1) illogical, (2)

implausible, or (3) without support in inferences that may be

drawn from the facts in the record.” Id. (internal quotation

marks omitted). If the bankruptcy court did not identify the

correct legal rule, or its application of the correct legal standard to the facts was illogical, implausible, or without support

in inferences that may be drawn from the facts in the record,

then the bankruptcy court has abused its discretion. Id.

III. Legal Analysis

A. Avoidance of the Lien

The bankruptcy court correctly held Thacker could avoid

the transfer of the security interest under 11 U.S.C. § 547(b).10

That section is designed to prohibit insolvent debtors, on the

eve of filing for bankruptcy, from paying off their debts held

by “preferred” creditors—those creditors whom the soon-to10This case was filed before the October 17, 2005 effective date of the

Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. 

4628 IN RE: TAYLOR
be bankrupts wish to favor. Indeed, on appeal, USAA does

not dispute the security interest was properly avoided as a

preferential transfer under § 547. Nevertheless, it is useful to

understand why the bankruptcy court found the transfer of the

security interest (hereinafter “the transfer”) was avoidable.

Pursuant to 11 U.S.C. § 547(b):

The trustee may avoid any transfer of an interest of

the debtor in property—

(1) to or for the benefit of a creditor;

(2) for or on account of an antecedent debt owed by

the debtor before such transfer was made;

(3) made while the debtor was insolvent;

(4) made— 

(A) on or within 90 days before the date of the filing of the petition; or

(B) between ninety days and one year before the

date of the filing of the petition, if such creditor at

the time of such transfer was an insider; and

(5) that enables such creditor to receive more than

such creditor would receive if— 

(A) the case were a case under chapter 7 of this

title;

(B) the transfer had not been made; and

(C) such creditor received payment of such debt to

the extent provided by the provisions of this title.

[1] The trustee proved the transfer met all the requirements

necessary for the bankruptcy court to avoid the preferential

IN RE: TAYLOR 4629
transfer. The Taylors transferred the security interest to

USAA. See § 547(b)(1). The transfer was in exchange for the

$18,020 loan USAA made to the Taylors on August 30, 2005.

See § 547(b)(2). Under section 547(f), debtors are presumed

insolvent for the 90 days prior to filing for bankruptcy. See

§ 547(b)(3). The date of the transfer is the date the security

interest was perfected, September 20, 2005, only 8 days

before the Taylors filed for bankruptcy on September 28,

2005. See § 547(b)(4). 

[2] As a result of the transfer, USAA received more than

it would have received had the transfer not been made. See

§ 547(b)(5). When the transfer was made, USAA’s loan

became secured by the car. When the Taylors declared bankruptcy, USAA was entitled to repossess the car if the Taylors

defaulted on the loan. The car was valued at $19,500 at purchase and between $14,240 and $15,895 when Thacker filed

the adversary action on behalf of the estate.

[3] If the transfer had not occurred, and the Taylors had

defaulted on the loan when they filed for bankruptcy, then

USAA would be entitled only to file a claim for the value of

the unpaid principal on the loan as an unsecured creditor. In

that situation, the debtors would be less likely to make their

monthly payments to USAA because unlike a lender with a

perfected security interest who usually has the legal right to

repossess the encumbered property upon default of the loan

payments, an unsecured creditor must simply hope for repayment from the bankrupt estate. Because the transfer met all

the requirements of § 547(b), the bankruptcy court correctly

held the transfer avoidable. 

B. The Transfer of the Security Interest, not the

Loan, was Avoidable under § 547

[4] When a creditor perfects a security interest for new

value after the 20-day period provided for in § 547(c) and the

debtors declare bankruptcy within 90 days, the trustee may

4630 IN RE: TAYLOR
avoid the transfer of the security interest, but not the underlying loan. For the purpose of bankruptcy law, courts treat the

perfection of the security interest after twenty days as a new

transfer that does not fall within any of the exceptions to 11

U.S.C. § 547. 

[5] The Supreme Court has affirmed this approach. In

Fidelity Financial Services, Inc. v. Fink, 522 U.S. 211 (1998),

aff’g In re Beasley, 183 B.R. 857, 862 (Bankr. W.D. Mo.

1995), the debtor agreed to a purchase-money security interest

with a creditor to purchase a car. There, as here, the lender

perfected the security interest 21 days after the debtor took

possession of the car and raised the enabling loan defense in

response to the trustee’s adversarial action to avoid the transfer. Id. at 213. The Court held state law grace periods for

creditors to perfect security interests were inapplicable in the

bankruptcy context. Id. at 216-17. The creditor could not

invoke the enabling loan defense when it perfected its security

interest more than 20 days after the debtor took possession,

even if state law created a grace period for the perfection of

a security interest. Id. As relevant here, the Court affirmed the

bankruptcy court’s order setting aside the lien only. See In re

Beasley, 183 B.R. at 862. Despite avoiding the transfer of the

security interest, that bankruptcy court did not set aside the

underlying loan for the purchase of the car. Accord Rodriguez

v. Drive Financial Services, LP (In re Bremer), 408 B.R. 355,

359 (10th Cir. BAP 2009).

[6] This approach seems well accepted by bankruptcy

courts. For example, in Kelley v. General Motors Acceptance

Corp. (In re Farmer), 209 B.R. 1022 (Bankr. M.D. Ga. 1997),

the debtors executed a purchase-money security interest to

purchase a Pontiac Grand Am. The creditor did not perfect its

lien within 20 days of the debtors taking possession of the car.

On appeal, the parties agreed the security interest was avoidable as a preference, but disputed the correct remedy. See 209

B.R. at 1024. The court noted: “The ‘transfer’ at issue in this

case was a lien, not the vehicle.” Id. The court ordered the

IN RE: TAYLOR 4631
security interest declared void and for the creditor to return

the amount of the payments it received from the debtors. Id.

at 1026. That is what should have happened here.

C. However, the bankruptcy court did not abuse its

discretion in holding it could award the value of the

security interest.

[7] Section 550(a) gives a trustee two remedy options

when the court avoids a preferential transfer. That section

states:

[T]o the extent that a transfer is avoided under section . . . 547 . . . of this title, the trustee may recover,

for the benefit of the estate, the property transferred,

or, if the court so orders, the value of such property,

from — (1) the initial transferee of such transfer or

the entity for whose benefit such transfer was made;

or (2) any immediate or mediate transferee of such

initial transferee.

Thus, the bankruptcy court may award the trustee (1) the

actual property, or (2) the value of the property. The statute

does not explain when a court should award the trustee recovery of the actual property and when it should, in the alternative, award the trustee recovery of the value of the property.

The statute states only that a court must issue a “single satisfaction.” 11 U.S.C. § 550(d). Bankruptcy courts have discretion whether to award recovery under § 550, even when the

transferred property is a lien. E.g., Rodriguez v. Drive Financial Services, LP (In re Bremer), 408 B.R. 355, 359 (B.A.P.

10th Cir. 2009). If a bankruptcy court permits the trustee

recovery, the court has discretion whether to award the trustee

recovery of the property transferred or the value of the property transferred. Id.

USAA contends the language “to the extent a transfer is

avoided,” in § 550 limits the bankruptcy court’s choice of

4632 IN RE: TAYLOR
remedy to simply canceling the security interest. Ordinarily,

when a trustee successfully brings an adverse action against

a creditor, 11 U.S.C. § 551 provides the default remedy. That

section states: 

Any transfer avoided under section 522, 544, 545,

547, 548, 549, or 724(a) of this title, or any lien void

under section 506(d) of this title, is preserved for the

benefit of the estate but only with respect to property

of the estate.

A trustee, however, has the discretion to seek an alternative

remedy under § 550 (“the trustee may recover . . .”) (emphasis

added). See In re Bremer, 408 B.R. at 358-59 (“Preservation

is automatic, while recovery is not. Recovery is necessary

only when the remedy of avoidance, and therefore of preservation, is inadequate.”). USAA’s interpretation of the statute

would render the majority of § 550 meaningless surplusage in

the context of a non-possessory lien or security interest. We

therefore reject USAA’s contention that, because the security

interest was void ab initio, the bankruptcy court lacked discretion to award recovery under § 550. The security interest was

not void ab initio once the bankruptcy court authorized the

estate to recover the value of the security interest under § 550.

[8] The next question is whether the bankruptcy court

abused its discretion when it decided to award the estate the

value of the security interest, instead of the security interest

(the property transferred) itself. We hold it did not. The purpose of § 550(a) is “to restore the estate to the financial condition it would have enjoyed if the transfer had not occurred.”

E.g., Aalfs v. Wirum (In re Straightline Invs., Inc.), 525 F.3d

870, 883 (9th Cir. 2008) (internal citations omitted). A bankruptcy court ordinarily determines the value of the property to

be the value at the time of the transfer, but has discretion on

how to value the property so as to put the estate in its pretransfer position. Joseph v. Madray (In re Brun), 360 B.R.

669, 674 (Bankr. C.D. Cal. 2007) (“Typically, courts equate

IN RE: TAYLOR 4633
‘value’ with the fair market value of the subject property at

the time of the transfer.”). In this case, the bankruptcy court

held correctly that awarding the estate the value of the security interest would more closely restore the estate to its pretransfer position than simply avoiding the transfer.

Addressing this exact issue, the BAP held a bankruptcy

court had discretion to award the property or the value of the

property in order to avoid a lien. In re Bremer, 408 B.R. at

358-59. In re Bremer involved two consolidated cases whose

facts were indistinguishable from the present case. The debtors loaned auto buyers the purchase price of their cars through

purchase-money security interests from the purchasers. The

security interests were avoidable under § 547 and the trustee

brought adversarial actions to avoid the transfers of the securities interests. Id. at 358. The bankruptcy court avoided the

transfers but held that the correct remedy was to return the

property—the security interest—to the estate. Id.

The BAP affirmed on the ground that the bankruptcy

courts’ remedy, to return the security interest, was not an

abuse of the courts’ discretion. Id. at 361. The BAP did not

hold the only available remedy was to avoid the security interest. Id. at 360 (“[W]e decline to hold that § 550(a) relief is

unavailable in every lien avoidance case.”). Instead, the BAP

noted, “there are circumstances in which avoiding and preserving a lien under § 551 may not suffice to put the estate

back to its pre-petition position . . . and awarding the trustee

the value of the vehicle was the proper § 550 remedy.” Id.

The BAP went on to identify two possible situations where

avoiding a lien is an insufficient remedy and recovery of the

value of the security interest is necessary to restore the estate

to its pre-transfer position. First, “[w]here the property is

unrecoverable or its value diminished by conversion or depreciation, courts will permit the recovery of value.” Id. And second, “when the value is readily determinable and a monetary

award would work a savings for the estate.” Id. In contrast,

4634 IN RE: TAYLOR
“[w]hen the record is devoid of evidence on the property’s

market value or when conflicting evidence exists on the value

of the transferred property, courts have ordered the property

to be returned.” Id.

Here, the bankruptcy court held the value of the security

interest was diminished by depreciation and payments the

Taylors had made by the time the court acted on the trustee’s

motion to avoid the security interest. Hence, the bankruptcy

court awarded the value of the security interest to restore the

estate to the position in which it would have been had the

transfer of the security interest to USAA not been made. The

bankruptcy court was attempting to correct for the difference

between the value of the security interest at the time of the

transfer (September 20, 2005) and the value of the security

interest at the time of judgment (August 10, 2007). We agree

that the value of a security interest is determined in part by the

value of the secured asset, in this case the value of the Taylors’ car. Hence, the depreciation of the value of the car lowered the value of the security interest. Furthermore, the value

of the security interest is determined in part by the outstanding balance of the Taylors’ debt. As the Taylors made payments to reduce their debt, the value of the security interest

diminished. 

[9] The error here stems from the bankruptcy court’s determination of the value of the security interest. The bankruptcy

court attempted to make up for the diminution of the security

interest’s value—for payments made and depreciation in the

value of the car—in its remedy. 

We understand the bankruptcy court’s reasoning to be as

follows: If USAA had not received a valid security interest in

the Camry when the Taylors purchased it, the Taylors could

have acquired another loan, e.g. from Bank X, for an amount

equal to the value of the original loan in exchange for transferring the security interest in the car to Bank X. Thus, when

the Taylors filed for bankruptcy, the estate would have had

IN RE: TAYLOR 4635
the automobile, an unsecured debt of $18,020 owed to USAA,

and a secured debt of $18,020 owed to Bank X.11 The estate

would have had the automobile, an unsecured debt of $18,020

owed to USAA, and a secured debt of $18,020 owed to Bank

X. The bankruptcy court tried to recreate this alternative scenario through its judgment, except instead of USAA holding

the unsecured debt and another bank holding the secured debt,

USAA was to hold both.

The bankruptcy court’s premise, which the BAP seems to

have accepted without discussion, 390 B.R. at 665 n.13, that

upon the purchase of the Camry, the Taylors could get a loan

and that such a loan would be for $18,020, is not supported

by the evidence. There is no evidence in the record to support

the Trustee’s claim that the security interest was worth a loan

of $18,020, which would make it more likely than not that

Bank X would loan that amount on the Camry. Additionally,

there is no evidence that a second bank would have loaned the

Taylors $18,020 in exchange for a secured interest in the

Camry when any bank with access to honest financial documents would have seen that the Taylors had just incurred an

$18,020 debt to USAA. Furthermore, we question the estate’s

claims that the car was worth the full $18,020 when, 21 days

after the Taylors took possession, USAA perfected its security

interest. The estate’s motion does not contain any support or

explanation why the Camry’s value would not have started to

depreciate the moment the Taylors drove their vehicle off the

dealer’s lot. 

[10] For these reasons, we hold the bankruptcy court

abused its discretion. The bankruptcy court’s finding that (1)

11This raises the question why the bankruptcy court thought the Taylors

could only get the value of the original loan, $18,020, and not the full purchase price of the car, $19,500. There was no evidence whether market

conditions in 2005 would have provided for a fully-financed, no down

payment purchase. The bankruptcy court assumed the Bank X loan would

have allowed Bank X properly to perfect its security interest. 

4636 IN RE: TAYLOR
another bank would loan $18,020 collateralized by a security

interest, and (2) the value of the security interest was equal to

an unsecured loan of $18,020 was “without support in inferences that may be drawn from the facts in the record.” Hinkson, 585 F.3d at 1262 (quotation marks omitted). 

Ordinarily, where a trial court bases its judgment on a

clearly erroneous finding of fact, we remand for further findings consistent with our opinion. In this case, however, no

remand is necessary. It is well established that in deciding to

award an estate the value of property, a bankruptcy court must

decide “whether there is conflicting evidence as to the value

of the property and whether the value of the property is readily determinable.” 5 Collier on Bankruptcy ¶ 550.02[3][a], at

550-9-10 (15th ed. re 2008). 

Where the value of the property cannot be easily or readily

determined—as is the case here—the correct remedy is to

return the property, not award an estimate of the value of the

property. Id.; accord In re Bremer, 408 B.R. at 360. For

example, in In re McLaughlin, 183 B.R. 171 (Bankr. W.D.

Wis. 1995), the bankruptcy court avoided the transfer of a

security interest in a mobile home because the security interest was not perfected within the time specified under § 547(c).

The bankruptcy court held the trustee could not recover the

value of the property because the value was not readily determined. 183 B.R. at 177 (“if the market value of the property

can be readily determined and would work a savings for the

estate, the trustee may recover value rather than the property.”). The court held the value of the lien was related to the

market price of the mobile home, but did not specify how. Id.

Nevertheless, because the value of the mobile home one

month after purchase was not necessarily the same as the purchase price, the bankruptcy court declined to award the trustee

the value of the property. Id. Here twenty-one days elapsed

between the day the Taylors took possession of the Camry

and when they transferred the security interest to USAA, but

we see no reason why a nine day difference would change the

IN RE: TAYLOR 4637
fact that the value of the security interest was not readily

ascertainable.

[11] We find the value of the security interest at the time

of the filing of the bankruptcy petition is not readily ascertainable from this record. Therefore, the only available remedy is

to return to the estate the property, i.e., the security interest,

and not the value of the property.12

The only remaining wrinkle is what to do with the payments made to USAA. The record does not include a clear

description of the schedule of payments to USAA. Some, possibly all, of the payments came from the Taylors’ postpetition exempt income. We do not see any reason to return

those payments to the Taylors. The parties, however, have not

addressed this issue so we remand to the bankruptcy court to

address the payment issue in the first instance. 

Some of the payments, however, may have been paid by

the estate, either following the Taylors’ declaration of bankruptcy, or, by the Taylors during the 90 days preceding their

declaration. Any such payments must be returned by USAA

to the estate, either as postpetition transactions under 11

U.S.C. § 549, or, as a prepetition preferential transaction

under 11 U.S.C. § 547. We remand to the bankruptcy court to

determine whether the estate made any pre- or post-petition

transfers to USAA in payment of the loan and, if so, whether

those payments should be returned to the estate. 

We note in passing that Thacker’s objection to canceling

the security interest, on the grounds that if USAA returned the

monthly payments made by the Taylors and then had an unsecured claim for the original $18,020, the calculation of prejudgment interest on the monthly payments would prove diffi12We do not reach the question whether “value” as used in § 550 may

extend beyond a simple money judgment to include injunction-style remedies such as loans. 

4638 IN RE: TAYLOR
cult or complicated, lacks merit. The parties should have

records of the timing of each monthly payment, and they can

calculate the same 4.30% per year simple interest, as awarded

by the bankruptcy court in its first remedy, on each recoverable monthly payment until USAA has satisfied the judgment.13

IV. Conclusion

[12] The Bankruptcy Appellate Panel’s decision was correct to the extent it held a bankruptcy court had discretion to

award a trustee the value of a security interest that was

avoided under § 547. The bankruptcy court, however, clearly

erred in determining the correct value of the security interest.

We reverse with instructions for the bankruptcy court to avoid

the security interest and to determine in the first instance how

to handle the recovery of the monthly payments. 

REVERSED AND REMANDED.

13The bankruptcy court was correct to award prejudgment interest. See

Acequipa, Inc. v. Clinton (In re Acequipa, Inc.), 34 F.3d 800, 818-19 (9th

Cir. 1994). The same rate of 4.30% per year simple interest should be

used. 

IN RE: TAYLOR 4639