## Facts

- Elray and Jean Rash filed for Chapter 13 bankruptcy owing Associates Commercial Corporation (ACC) about $41,171 on a loan secured by a lien on a tractor-truck used in Elray Rash’s freight-hauling business.
- The debtors’ plan treated ACC as a secured creditor under 11 U.S.C. § 506(a), which bifurcates a creditor’s claim into secured and unsecured portions based on collateral value.
- To confirm their plan, the debtors elected the 11 U.S.C. § 1325(a)(5)(B) “cramdown” option, retaining the truck over ACC’s objection and proposing to pay ACC the present value of its allowed secured claim through plan payments.
- The parties disputed the valuation standard for the truck: ACC sought replacement value (cost to obtain a like truck for the same use), while the debtors sought foreclosure value (expected net recovery from repossession and sale).
- The bankruptcy court adopted the foreclosure-value figure and confirmed the plan; the district court and Fifth Circuit affirmed.
- The Supreme Court granted review to determine the proper valuation standard under § 506(a) when the debtor retains collateral in a Chapter 13 cramdown.

## Issues

1. When a Chapter 13 debtor retains and uses collateral under § 1325(a)(5)(B) over a secured creditor’s objection, does § 506(a) require valuation at foreclosure value or replacement value?
2. How does § 506(a)’s instruction to value property “in light of the purpose of the valuation and of the proposed disposition or use” affect the allowed secured claim in a cramdown plan?

## Decision

- The Supreme Court reversed the Fifth Circuit and remanded.
- The Court held, 8–1, that when a debtor retains collateral under the Chapter 13 cramdown option, § 506(a) calls for a replacement-value standard.
- The Court reasoned that valuation must reflect the plan’s proposed disposition or use; because the debtor keeps and uses the property, valuation should not be based on a foreclosure sale that will not occur.
- Justice Stevens dissented, favoring a foreclosure-value measure tied to the creditor’s recovery upon enforcement of its lien.

## Legal Principles

- Under 11 U.S.C. § 506(a), valuation of collateral is context-specific and must be determined in light of the purpose of the valuation and the proposed disposition or use of the property.
- In a Chapter 13 cramdown where the debtor retains and uses the collateral, the allowed secured claim is measured by replacement value: the cost the debtor would incur to obtain a like asset for the same proposed use.
- Foreclosure value may be appropriate where the proposed disposition is surrender or sale, but it is not the proper measure when the plan contemplates continued debtor use and payment through the plan.
- Section 506(a) does not impose a single valuation method for all bankruptcy contexts; the correct standard depends on how the collateral will be treated under the plan.

## Conclusion

The Court held that a Chapter 13 debtor who keeps collateral through cramdown must pay the secured creditor based on the collateral’s replacement value, because § 506(a) requires valuation consistent with the collateral’s proposed retention and use rather than a hypothetical foreclosure sale.


Assocs. Com. Corp. v. Rash, 520 U.S. 953 (1997)