Bankruptcy: Chapter 13 Plan Confirmation - Valuation of a Car

     Two bankruptcy cases help clarify the value that Bankruptcy Courts should place upon a vehicle when considering a Chapter 13 plan confirmation.

     In the case of In Re Mays, the United States Bankruptcy Court, Western District of Virginia, refused to confirm a plan which did not value a Ford pickup, which the debtors proposed to keep, at the truck's retail value as reflected in the NADA Used Car Guide. The Court found that Bankruptcy Code §325(a)(5) provides that if a debtor in Chapter 13 intends to retain property subject to a lien, then the secured creditor must receive the present value of its allowed secured claim. The Court further found that the retail price, as opposed to the acceptable wholesale price, was the most commercially reasonable price.
     In the case of In Re Dews, the United States Bankruptcy Court, Eastern District of Virginia, reached a similar conclusion that retail value is the appropriate value. In doing so, the Court recognized that this valuation was a change to the standard set forth in the case of In Re Jones, which held that the open market between private parties was the appropriate reference point to establish value. The standard was worked out in practice to generally mean somewhere around the average of the wholesale and retail values.
     The lesson of these two cases is that Chapter 13 plans should be reviewed to ensure that value is properly assessed. The end result will be, of course, a higher return on creditor claims.