## Facts

- In 1978, Aletha Dewsnup and her husband borrowed about $119,000 secured by a deed of trust on two parcels of Utah farmland.
- Dewsnup defaulted around 1979, and the creditors began foreclosure in 1981, which was repeatedly stayed by bankruptcy filings.
- In a Chapter 7 case filed in 1984, the trustee abandoned the farmland back to Dewsnup.
- At the time of the adversary proceeding, the debt was about $120,000, and the bankruptcy court found the land’s fair market value was $39,000.
- Dewsnup sought to reduce the lien to $39,000 and treat the remainder as unsecured under 11 U.S.C. §§ 506(a) and 506(d).

## Issues

1. Whether 11 U.S.C. § 506(d) permits a Chapter 7 debtor to void the undersecured portion of a creditor’s lien on real property by “stripping down” the lien to the judicially determined collateral value.
2. How the phrase “allowed secured claim” in § 506(d) should be construed in relation to § 506(a): as a single term defined by § 506(a), or as a claim that is both allowed under § 502 and secured by a valid lien.

## Decision

- The Supreme Court affirmed the judgment for the creditors and held that § 506(d) does not authorize lien strip-down in this setting.
- The Court construed “allowed secured claim” in § 506(d) to mean a claim that is allowed under § 502 and secured by a lien, without limiting “secured” to the collateral’s current value.
- Because the creditors’ claim was allowed and secured by a valid lien, it was not “not an allowed secured claim,” and the lien-voiding language of § 506(d) did not apply.
- The Court relied in part on the pre-Code principle that liens on real property generally survive bankruptcy unaffected and rejected freezing the lien at a single valuation that would shift post-bankruptcy appreciation to the debtor.
- The holding was limited to the context presented: a Chapter 7 debtor seeking to strip down a valid lien securing an allowed claim using § 506(d).

## Legal Principles

- In Chapter 7, § 506(d) does not permit a debtor to reduce an undersecured lien on real property to the collateral’s judicially determined value when the underlying claim is allowed and the lien is valid.
- For purposes of § 506(d) in this context, “allowed secured claim” is read term-by-term: the claim must be allowed under § 502 and secured by a lien; it need not be “secured” only up to collateral value as determined under § 506(a).
- Absent clear statutory authorization, bankruptcy does not eliminate or reduce valid real-property liens solely because the collateral’s current value is less than the debt; such liens generally remain enforceable against the property after bankruptcy.
- A valuation under § 506(a) does not, by itself, fix the amount of a surviving lien in Chapter 7 for purposes of § 506(d).

## Conclusion

The Court held that § 506(d) cannot be used in Chapter 7 to void the undersecured portion of a valid lien securing an allowed claim, leaving the lien in place despite a judicial finding that the collateral is worth less than the debt.


Dewsnup v. Timm, 502 U.S. 410 (1992)