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United States Court of Appeals

Fifth Circuit

FILED

December 20, 2004

Charles R. Fulbruge III

Clerk

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

__________________________

No. 03-11143

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In the Matter of: DAWN M. STEMBRIDGE

Debtor

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CHASE MANHATTAN BANK USA NA,

Appellant - Cross - Appellee,

versus

DAWN M. STEMBRIDGE,

Appellee - Cross - Appellant.

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Appeals from the United States District Court

For the Northern District of Texas

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Before DEMOSS, DENNIS, and CLEMENT, Circuit Judges.

EDITH BROWN CLEMENT, Circuit Judge:

Creditor appealsfromthe bankruptcycourt’s valuation of creditor’ssecured collateralfor the

purposes of confirming debtor’s cram-down plan. The bankruptcy court ruled that the value of the

collateral would be the greater of two values, one premised on the collateral’s foreclosure value as

of the petition date, and the other based o n the replacement value determined as of the plan
1

 Under the Northern District of Texas’s General Order 98-4, the monthly payments were

calculated at 1.25% of the asset value. The $119.25 monthly payments were calculated from the

$9,540 foreclosure value of the Truck.

2

 This provision of the code allows a debtor to retain and use secured collateral postconfirmation. It is termed “cram-down” because the debtor may keep the collateral over the

creditor’s objection.

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confirmation date. Because we hold that the bankruptcy court erred in its valuation, we reverse and

remand.

I.

On August 13, 1999, Dawn Stembridge (“Stembridge”) entered into a contract with King

Charles Hillard Ford to purchase a 1999 Ford F-150 StyleSide SuperCab with a V-8 engine (“the

Truck”). The total debt incurred by Stembridge under the contract was $32,244.03 (after a $1,000

down payment) to be paid in monthly installments of $414.69 beginning on September 12, 1999.

Chase Manhattan Bank USA (“Chase”) underwrote the purchase of the Truck, on which it owns a

properly-perfected lien.

On August 22, 2001, Stembridge filed for Chapter 13 bankruptcy relief. At that time,

Stembridge owed to Chase a balance of $22,946.57. On September 10, 2001, Stembridge filed a

preliminary plan that valued the Truck at $9,540.00—the Truck’s foreclosure value at the time. On

the same day, Stembridge filed an Authorization for Pre-Confirmation Disbursement (“APD”),

through which Stembridge was t o pay Chase $119.25 per month as adequate protection for the

Truck.1

Under Stembridge’s proposed plan, she wasto keep the Truck over Chase’s objection under

the code’s so-called “cram-down” provision.2 See 11 U.S.C. § 1325(a)(5). Chase challenged the

proposed plan, arguing that Chase’s secured claim equaled the replacement value of the Truck, an
3

 The bankruptcy court used the N.A.D.A. Official Used Car Guide Trade Value to

calculated the Trade Value. To determine the replacement value, the bankruptcy court averaged

the Used Car Guide with the Kelley Blue Book Private Party Value.

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amount greater than the foreclosure value. Chase contended that the value should be determined as

of the petition filing date which, given the depreciation of the Truck, is an amount more than the

value determined as of the confirmation date. Chase also argued that the APD payments it received

were deficient because they were based on the Truck’s foreclosure value, and not the replacement

value.

The bankruptcy court ruled that Chase was entitled to the greater of two amounts: the

replacement value calculated at the time of plan confirmation (November 2002), or the “Trade

Value,” an amount premised on the foreclosure value of the Truck, determined as of the date that

adequate protection was first provided (September 2001).3 It concluded that the Trade Value was

greater($12,825.00);subtracting the previouslyremittedAPDpayments($1,311.75), the bankruptcy

court determined that in order to be confirmed, the plan needed to provide Chase the present value

of $11,513.25. The court also rejected Chase’s argument that the APD payments constituted

inadequate pro tection for its depreciating collateral, holding that any deficiency was captured by

Chase’s secured claim. The district court affirmed the rulings of the bankruptcy court, and Chase

timely filed this appeal.

II.

In reviewing the ruling of a bankruptcy court, we use the same standard of review as the

district court. See, e.g., In re Gerhardt, 348 F.3d 89, 91 (5th Cir. 2003). “Valuation is a mixed

question oflaw and fact, the factual premises being subject to review on a clearly erroneousstandard,

and the legal conclusion being subject to de novo review.” In re T-H New Orleans Ltd. Partnership,
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116 F.3d 790, 799 (5thCir. 1997) (citing In re Clark Pipe &Supply Co., Inc., 893 F.2d 693, 697–98

(5th Cir. 1990)).

III.

Chase challengestwo ofthe bankruptcy court’srulings. The first is the court’s determination

that the Truck should be valued at the greater of two amounts: either the replacement value

determined as of November 2002 (the confirmation date), or the foreclosure value as of September

2001 (the date when the APD payments were authorized). In analyzing this holding, we are faced

with the following novel question: when should a bankruptcy court determine the value of a secured

claim for the confirmation of a plan under the code’s cram-down provision. Second, Chase

challenges the sufficiency of the APD payments, arguing that it has a § 507(b) priority claim for the

deficiency. We discuss each in turn.

A.

In order to value the amount of a creditor’ssecured claim, § 506(a) states that the “value [of

an allowed secured claim] shall be determined in light of the purpose of the valuation and of the

proposed disposition or use of such property.” 11 U.S.C. § 506(a); see also Assocs. Commercial

Corp. v. Rash, 520 U.S. 953, 961 (1997). Valuation under § 506(a) thus differs depending on the

purpose and circumstances for which it is undertaken. In Rash, the Supreme Court held that, with

respect to confirmation of a cram-down under § 1325(a), § 506(a) requires a replacement-value

standard for determining the amount of an allowed secured claim for depreciating assets. Rash, 520

U.S. at 962. Only that value, the Court held, gave significance to the “purpose of the valuation” and

the “proposed disposition or use” of the property. Id. In doing so, the Court explicitly held that §

506(a) does not allow for a foreclosure value standard: “Applying a foreclosure-value standard when
4

 The only potential distinguishing feature is that a period of over a year elapsed between

the filing and the confirmation, whereas in Rash the filing and confirmation were

contemporaneous. This, however, is irrelevant to the disposition of the property postconfirmation; even if one argues that as of the petition’s filing it is unclear whether the debtor will

ultimately retain the property, and thus it is possible that a foreclosure may take place, in this case

Stembridge retained the Truck throughout the pendency of bankruptcy. See Rash, 520 U.S. at

963 (“[T]he actual use, rather than the foreclosure sale that will not take place”—or in this

scenario, did not take place—“is the proper guide under a prescription hinged on the property’s

‘disposition or use.’”). 

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 Although the bankruptcy court used the Trade Value to determine the extent of adequate

protection payments at the filing of the petition, Rash interprets § 506(a) with respect to cramdowns only. Therefore, our holding does not extend to the bankruptcy court’s use of the Trade

Value to set the APD.

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the cram down option is invoked attributes no significance to the different consequences of the

debtor’s choice to surrender the property or retain it.” Id. Where, as here, the collateral is being

retained bythe debtor for purposes of confirming a § 1325(a) cram-down plan, a foreclosure standard

is inappropriate. Id.

In valuingChase’ssecured claimat the initiation ofAPD payments, the bankruptcycourt used

the Trade Value. In doing so, the bankruptcy court erred. The problem is not with the Trade Value

as such; bankruptcy courts have wide discretion in determining the replacement value. Rash, 520

U.S. at 963 n.6. Had the bankruptcy court determined that the replacement value was best captured

by the Trade Value, we would find no error. However, the bankruptcy court explicitly premised the

Trade Value on the foreclosure value of the vehicle, contrary to Rash’s holding. We see no

principled distinction, and Stembridge failsto propose any, between this case and Rash.

4

 The purpose

of this valuation, as in Rash, is for plan confirmation under § 1325(a). Because Rash’s holding

applies, we hold that the bankruptcy court erred in disregarding it.5
6

 We note that in many, if not most, cases involving a cram-down, the plan is confirmed

along with, or shortly thereafter, the filing of the original petition. Appellant’s counsel at oral

argument stated that many of the districts in this Circuit confirm plans concurrently with the filing

of the petition. In such cases, this valuation will pose little problem, as the filing and confirmation

dates will be roughly the same.

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The bankruptcycourt also ruled that the replacement value, determined as ofthe confirmation

date, is a possible benchmark for valuation of the Truck. The question with respect to this ruling is,

at what point in time should a secured asset be valued for the confirmation of a cram-down plan?6

This was not specifically addressed in Rash. We first note that the language of the cram-down

provision implies that the value should not be determined as of the confirmation date. Section

1325(a) states that “the value, as of the effective date of the plan, of property to be distributed . . .

is not lessthan the allowed amount ofsuch claim.” 11 U.S.C. § 1325(a)(5)(B)(ii). Because the value

of the secured creditor’s claim to be disbursed is as of the confirmation date—the “effective date of

the plan”—then by defining the allowed claim also as of the confirmation date, the words “is not less

than the allowed amount of such claim” become superfluous. Moreover, the code does not dictate

a valuation at some point between filing and confirmation. If the code provides for neither the

confirmation date nor some intermediate time before that date as the proper date for valuation, then

the value of the creditor’s interest must be determined vis-à-vis the amount of its interest at the

institution of the bankruptcy proceedings—i.e., the filing date. 

The code’s scheme of protecting the value of an asset against depreciation from the date of

the filing provides support for this approach. The automatic stay is instituted at the filing of the

petition. See id. at § 362(a). It is at that point that the protection of secured creditors’ assets begins

with the provision of adequate protection:section 362 connectsthe continuationofthe automatic stay

to the provision of adequate protection, which may be provided by “requiring the trustee to make a
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cash payment or periodic cash payments . . . to the extent that the stay under section 362 . . . results

in a decrease in the value of such entity’s interest in such property.” Id. at § 361(1) (emphasis

added). Therefore, the code specifically ensures the protection of a secured creditor’s assets against

any decrease in value from the beginning of the automatic stay, and, because the stay isinstituted the

moment the petition isfiled, the protection from depreciation also begins at that moment. This is the

tradeoff the automatic stay creates for creditors and debtors: creditors are prevented from seizing

their secured assets in order to provide debtors with “breathing room” to reorganize; in return, the

creditors’ present value is preserved throughout the reorganization through adequate protection (and

priority of its claim). It follows that this protection extends to the debtor’s proposed plan itself.

Alater valuation date would eviscerate value ofthe secured creditor’s claimfor a depreciating

asset—for each day after the filing, the value ofthe collateral decreases, and the deficiency is neither

captured through adequate protection nor, under the bankruptcy court’s test, the confirmation plan

itself. Moreover, the bankruptcy court’s order can result in an extra penalty to the creditor.

Adequate protection, properly defined, isthe amount of an asset’s decrease in value fromthe petition

date. See, e.g., United Sav. Ass’n of Tex. v. Timbers of Inwood Forest Assocs. Ltd., 484 U.S. 365,

370 (1988). Under the bankruptcy court’s formulation, adequate protection may sometimes be

deducted from the value of the replacement value as of the confirmation date. That value, however,

already reflects the amount of depreciation that the capital suffered from the petition date. By

deducting adequate protection from this amount, the bankruptcy court’s test may serve as a double

penalty upon the creditor with no warrant under the bankruptcy code.

Summarizing our analysis, the code entitles the secured creditor to the present value of its

claimat the institution ofthe automatic stay. Therefore, to the extent that the bankruptcy court based
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 This approach has already been adopted by at least one bankruptcy court in this Circuit. 

See In re Longbine, 256 B.R. 470, 475 (S.D. Tex. 2000).

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the value of the Truck on its value as of the confirmation date, it erred. We hold that in order to

confirm a plan under §1325(a), the value of the collateralshould be determined as of the filing of the

petition, and that the plan should provide the replacement value less any adequate protection

payments already paid.7

B.

Chase also contends that the APD payments that Stembridge provided, namely the $119.25

monthly remittances, were insufficient because they were based on the Truck’s foreclosure value.

Chase arguesthat it is owed a § 507(b) priority claimfor that alleged deficiency. Although a different

valuation standard may be necessary under § 506(a) for adequate protection payments,see 11 U.S.C.

§ 506(a); In re Stark, 311 B.R. 750, 756 (N.D. Ill. 2004), because we hold that Chase is entitled to

the replacement value as of the petition date, an amount that necessarily includes any deficiency in

adequate protection payments, we need not address this question. 

IV.

Because the bankruptcy court erred in valuing the Truck, we REVERSE its decision and

REMAND the case to the bankruptcy court to determine the amount of Chase’s claim using the

replacement value of the Truck at the time of the filing.