449 B.R. 669
Bankr. M.D. Penn.2011Background
- Debtors Thomas H. McElwee, Jr. and Becky S. McElwee filed a voluntary Chapter 12 petition on March 30, 2010.
- Debtors owned three real properties: Wayne Road, Jumper Road, and Big Spring Road in Pennsylvania.
- Debtors proposed an amended Chapter 12 Plan with Wayne Road to be transferred to AgChoice if valued at $300,000 or more; otherwise to be sold.
- Rule 3012 valuation motion (eight respondents) sought determination of secured status of collateral; evidentiary hearing held January 13, 2011 with three appraisers testifying.
- Parties stipulated to lien priorities, no change in improvements, and that properties were used for farming/residential purposes.
- Court adopts a two-step valuation method considering debtor's proposed disposition and applicable value; findings to determine secured status under §506(a).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Proper valuation method under 506(a). | McElwees favor use of current/prospective use ( Rash guidance ). | Creditors may rely on different value standards depending on proposed disposition. | Two-step approach approved; value assessed per proposed use. |
| Wayne Road Property: liquidation vs fair market value. | Liquidation value appropriate if surrendered; otherwise fair market value if retained. | Amended Plan contemplates alternative dispositions; both values relevant. | Liquidation value $239,680; fair market value $299,600. |
| Jumper Road Property: fair market value for retention under plan. | Use fair market value given retention and no forced sale. | Comparable sales support higher/lower range depending on method. | Fair market value determined at $475,000. |
| Big Spring Road Property: fair market value with subdivision potential. | Consider subdivision impact and existing subdivision approvals. | Adjustments limited by current development conditions. | Fair market value determined at $725,000. |
Key Cases Cited
- Anderson v. Rash (Associates Commercial Corp. v. Rash), 520 U.S. 953 (1997) (valuation tied to proposed disposition and replacement value when debtor retains collateral)
- In re Brace, 163 B.R. 274 (Bankr.W.D.Pa. 1994) (use current/prospective use for valuation in Chapter 12)
- In re Watkins, 240 B.R. 735 (Bankr.C.D.Ill. 1999) (replacement value linked to debtor's use of property)
- In re Bishop, 339 B.R. 595 (Bankr.D.S.C. 2005) (valuation based on debtor's actual proposed use)
- In re Donato, 253 B.R. 151 (M.D.Pa. 2000) (local valuation evidence guiding §506 determinations)
- In re Serda, 395 B.R. 450 (Bankr.E.D.Cal. 2008) (guidance on fair market value post-exposure to market)
- In re Abruzzo, 249 B.R. 78 (Bankr.E.D.Pa. 2000) (support for considering debtor's use in valuation)
- In re McDonald, 205 F.3d 606 (3d Cir. 2000) (§506(a) secured claim scope and valuation principles)