Aрpellant/creditor Metrobank appeals from the district court decision that, pursuant to 11 U.S.C. § 506(a) of the Bankruptcy Code, the value of the bank’s secured intеrest in an encumbered vehicle that the appel-lee/debtor intends to retain under his chapter 13 reorganization plan is limited to the wholesale valuе of the vehicle. We reverse.
I.
Appellee/debtor Donald Allen Trimble secured financing through appellant/creditor Metrobank, for the purchase of a 1988 Ford Ranger pickup. Subsequently, the debtor filed for relief under chapter 13 of the Bankruptcy Code. The principal balance owing on the truck at the timе the debtor filed bankruptcy was $6,404.84. Under the proposed chapter 13 plan, Metrobank’s secured interest in the vehicle was valued at $4,000 with interest, while the remainder of the debt was unsecured, to be paid through the plan without interest. Although the plan provided that Metrobank’s claim would be paid in full, Metrobank objected to thе plan, arguing that it was fully secured and that interest should be paid on the entire debt. 1 By a joint stipulation of fact, the parties agreed that the wholesale value of the vehicle is $4,000 and the retail value is $6,500. The bankruptcy court ruled that the bank was only secured to the extent of the wholesale value of the vehicle. Thе district court affirmed the bankruptcy court’s ruling.
II.
Section 1325(a)(5)(B) of the Bankruptcy Code provides that, if a debtor in chapter 13 intends to retain property subject to a lien, the secured creditor must receive the present value of its allowed secured claim. Unless the creditor’s present value is preserved, cоnfirmation cannot occur over the creditor’s *531 objections. 11 U.S.C. § 1325(a)(5)(B). The amount of a secured claim is determined by 11 U.S.C. § 506(a), which provides in relevant part:
An allоwed claim of a creditor secured by a lien on property in which the estate has an interest ... is a secured claim to the extent of the value of such сreditor’s interest in the estate’s interest in such property, ... and is an unsecured claim to the extent that the value of such creditor’s interest ... is less than the amount of suсh 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....
11 U.S.C. § 506(a).
Cоurts interpreting section 506(a) have placed varying importance on the statute’s two clauses, resulting in disagreement as to the proper valuation methоd of a creditor’s secured claim. One line of cases determines that the decisive language of section 506(a) is the language of the first sentence which рrovides that the creditor’s claim is secured to the extent of the value of such creditor’s interest in the estate’s interest in such property.
See, e.g., In re Mitchell,
A second line of cases focuses instead on the language of the second sentence of section 506(a) which provides that the creditor’s lien interest must be valued in light of the purpose of the valuation and the proposed disposition or usе of the collateral.
See, e.g., In re Rash,
It is true that the plain meaning of the first sentence of section 506(a) requires a valuation of the creditor’s lien interest in the collateral. However, the fact that a hen in property gives the lienholder а right to repossess and sell the collateral does not automatically mean that the value of the hen is equal to the amount that the creditor would reсeive upon disposition of the cohateral in satisfaction of its hen. It must be remembered that a hen is fundamentally a security interest which secures payment of an obhgation. To value such an interest in property based solely on the amount that could be realized upon sale of the collateral ignores the value associated with the right to receive the stream of payments that the hen secures.
In re Green,
We adopt the reasoning of the Fifth Circuit in
In re Rash,
and other courts that have focused on the second sentence of section
*532
506(a), and we now conclude that the value of Metrobank’s lien interest is properly based on the retail value of the collateral without deduction for costs of sale. We agree with the Fifth Circuit that the retad valuation method is the only method that gives full effect to thе entire language of section 506(a). “If the first sentence of § 506(a) were interpreted to mean that the value must be fixed at the amount which the creditor would reсeive on foreclosure, then the last sentence of the statute which provides that the value should be determined in light of the purpose of the valuation аnd of the proposed disposition or use of the property, would be surplusage.”
In re Rash,
Applying these principles to the present case, we conclude the amount of Metrobank’s secured clаim is the lesser of the principal balance of the debt or the retail value of the encumbered vehicle, without deduction for costs of repossession or sale.
The judgment of the district court is reversed and the case is remanded for proceedings consistent with this opinion.
Notes
. Because the debtor's plan proposes to pay unsecured claims in full, the only issue in the present case is the amount of interest to be paid. The parties estimate that perhaps $150 in interest is in dispute in this case.