Opinion ID: 726752
Heading Depth: 1
Heading Rank: 2

Heading: analysis

Text: 9 A single question is presented to the en banc court: what is the appropriate method of valuation prescribed in a reorganization under Chapter 11 where collateral is retained by the debtors for the debtors' use? The Bankruptcy Code provides: 10 An allowed claim of a creditor secured by a lien on property in which the estate has an interest, or that is subject to setoff under section 553 of this title, is a secured claim to the extent of the value of such creditor's interest in the estate's interest in such property, or to the extent of the amount subject to setoff, as the case may be, and is an unsecured claim to the extent that the value of such creditor's interest or the amount so subject to setoff is less than the amount of such allowed claim. Such value shall be determined in light of the purpose of the valuation and of the proposed disposition or use of such property, and in conjunction with any hearing on such disposition or use or on a plan affecting such creditor's interest. 11 11 U.S.C. § 506(a). 12 The property of the estate of the debtor is the House. The interest of the estate is the ownership and possession of the House. The interest of the creditor is the tax lien on the House. According to the second sentence of section 506(a), that valuation is to be done variously depending on the context, in light of two factors, the purpose of the valuation and the use or disposition to be made of the interest. 13 When a Chapter 11 debtor or a Chapter 13 debtor intends to retain property subject to a lien, the purpose of a valuation under section 506(a) is not to determine the amount the creditor would receive if it hypothetically had to foreclose and sell the collateral. Neither the foreclosure value nor the costs of repossession are to be considered because no foreclosure is intended. Instead, when the proposed use of the property is continued retention by the debtor, the purpose of the valuation is to determine how much the creditor will receive for the debtor's continued possession. Hypothetical sales costs are not to be considered because no sale is intended. 14 In this case, the key fact is that the debtors are going to possess the House. This fact determines the disposition and use of the creditor's interest. The foreclosure value is not relevant because no foreclosure is intended by the Plan. The Taffis are in, not outside of, bankruptcy. The IRS is not foreclosing. Valuation must be accomplished within the actual situation presented. Consequently, the value has to be the fair market value of what the debtors are using. 15 The fair market value is not replacement value because the House is not being replaced. The fair market value is the price which a willing seller under no compulsion to sell and a willing buyer under no compulsion to buy would agree upon after the property has been exposed to the market for a reasonable time. The fair market value here has been determined by stipulation of the parties, approved by the bankruptcy court, to be $300,000. 16 There is nothing inequitable in this result. By agreeing to the Plan and allowing the Taffis to retain their residence, the IRS runs a risk. It is appropriate that it also benefit from the higher valuation. See In the Matter of Rash, 90 F.3d 1036, 1066 (5th Cir.1996) (dissent). 17 We overrule In re Mitchell, 954 F.2d 557 (9th Cir.1992), to the extent that it held the valuation under section 506(a) should be based on determining what the creditor would obtain if the creditor were to make a reasonable disposition of the collateral. Id. at 560. We make no judgment whether the fair market value of an automobile is high blue book or low blue book or some other value; that value is to be determined by the facts presented to the bankruptcy court. 18 Reaching this result, we put this circuit in harmony with all other circuits, except the Fifth, that have considered the question, In re Trimble, 50 F.3d 530, 531-2 (8th Cir.1995); In re Winthrop Old Farm Nurseries, Inc., 50 F.3d 72, 75-76 (1st Cir.1995); In re McClurkin, 31 F.3d 401, 405 (6th Cir.1994); In re Coker, 973 F.2d 258, 260 (4th Cir.1992). 19 Accordingly, the judgment of the district court is AFFIRMED with the modification that the IRS's concession as to the reduction of the tax lien is to be incorporated into the judgment.