Appeal from the United States District Court for the Southern District of Indiana, New Albany Division.
Before POSNER, Chief Judge, and EASTERBROOK and ROVNER, Circuit Judges.
APPEAL OF: NBD Bank, N.A.
DECIDED DECEMBER 12, 1996
This appeal raises the difficult issue of the standard for valuing secured claims in a Chapter 13 bankruptcy. When secured claims are filed in a liquidation (Chapter 7), the most common form of bankruptcy, the debtor's assets are sold and from the proceeds of the sale the secured creditors recover the market value of their collateral, plus, if they are undersecured--that is, owed more than those proceeds--the equivalent of deficiency judgments in the form of unsecured claims for the difference between what they are owed and what their collateral fetched at the sale. We say when secured claims are made in a liquidation because unless the secured creditor is oversecured (which would mean that the debtor retained equity in the collateral) he has, in principle, the alternative of bypassing the bankruptcy and foreclosing on his lien, In re Tarnow, 749 F.2d 464, 465 (7th Cir. 1984), although it will ordinarily be to his advantage to file a claim, Lynn M. LoPucki, Strategies for Creditors in Bankruptcy Proceedings secs. 7.5, 7.8, and p. 400 (2d ed. 1991), and he may even find himself dragged into the bankruptcy proceeding against his will. In re Lindsey, 823 F.2d 189, 191 (7th Cir. 1987).
The price obtained in a liquidation is usually a wholesale rather than a retail price. Retail value is simply wholesale value plus the costs of selling at retail, In re Ebbler Furniture & Appliances, Inc., 804 F.2d 87, 92 (7th Cir. 1986) (concurring opinion), and those costs are avoided when the collateral is sold by a repossessing creditor who is not himself a retail dealer, or by his surrogate, the sheriff or a trustee in bankruptcy, see Douglas G. Baird & Thomas H. Jackson, Cases, Problems, and Materials on Bankruptcy 10 (2d ed. 1990)--neither of whom is a retail dealer-- rather than by a secured creditor who does happen to be a retailer. Liquidation value, in other words, normally is wholesale value. Once in a while a secured claim must be valued in a Chapter 7 proceeding, rather than enforced through the sale of the collateral. This might be necessary because the assets have been sold in a bloc and the proceeds have to be allocated among the secured creditors, or to determine whether the debtor has any equity in the collateral or how much he must offer in order to redeem the collateral. 11 U.S.C. secs. 362(d)(2)(A), 722. But we can disregard these exceptions to the use of the market to place a value on the debtor's assets in a liquidation.
In a corporate reorganization under Chapter 11 of the Bankruptcy Code, the debtor retains its assets. Any secured creditor who is neither paid in full on the spot nor permitted to foreclose on his lien exchanges his original security interest for a new interest--common or preferred stock, or debentures or some other type of bond. Chapter 13 is a counterpart to Chapter 11, but for individuals who have a regular income, rather than for business firms. In re Schaitz, 913 F.2d 452, 453 (7th Cir. 1990). Chapter 13 authorizes the bankruptcy court to confirm a plan under which the debtor will be permitted to retain possession of the collateral of his secured creditors, and the creditors (both secured and unsecured) will in effect refinance their loans, much as in a Chapter 11 reorganization. The secured creditor is entitled to receive a security interest, or other property, at least as valuable as his original secured claim, 11 U.S.C. sec. 1325(a)(5)(B), so it becomes essential to value that original claim. That value is defined by section 506(a) as  "the value of [the] creditor's interest in the estate's interest in [the] property" of the debtor's estate in which the creditor has his lien,  as "determined in light of the purpose of the valuation and of the proposed disposition or use of [the] property."
NBD Bank, the appellant, has a lien on the Hoskinses' 1990 Ford Tempo. The trustee in bankruptcy, in his proposed Chapter 13 plan, valued the bank's secured claim at $3,987.50, which is midway between the stipulated retail value of the car, $4,650.00, and the stipulated wholesale value, $3,325.00. The bankruptcy court confirmed the plan, including the valuation of the car proposed by the trustee. 183 B.R. 166 (Bankr. S.D. Ind. 1995). The district judge affirmed. The bank appeals, contending that the retail value is the proper value.
The briefs and arguments of the parties are full of false starts. Both sides appeal to the "plain meaning" of section 506(a)--a bad sign. Both claim the authority of case law for their position, while acknowledging as they must that the circuits are divided on the proper standard for valuing the interests of secured creditors in Chapter 13 proceedings. Compare In re Rash, 90 F.3d 1036, 1060-61 (5th Cir. 1996) (en banc) (wholesale value), with In re Taffi, 96 F.3d 1190 (9th Cir. 1996) (en banc) (Chapter 11); In re Trimble, 50 F.3d 530 (8th Cir. 1995); In re Winthrop Old Farm Nurseries, Inc., 50 F.3d 72, 74-76 (1st Cir. 1995) (Chapter 11); In re McClurkin, 31 F.3d 401, 404-05 (6th Cir. 1994); In re Coker, 973 F.2d 258, 260 (4th Cir. 1992) (all retail value); see generally 2 Keith M. Lundin, Chapter 13 Bankruptcy sec. 5.48 (2d ed. 1994). When there is a circuit split, there is no "authority" to guide the undecided circuits. Authority is a ground for decision over and above reasons, and so drops out when the courts to whose authority another court might defer cannot agree on the proper resolution of the issue. We are not bound by the decision of another circuit. But if the only other circuit or circuits to have decided the issue had decided it one way, this would be a reason over and above the reasoning employed in those decisions for following them.
At argument the bank's counsel asserted ill-advisedly that nothing turns on the fact that this is a Chapter 13 case. Much may, since, as we have seen, the usual value of a secured claim in a Chapter 7 bankruptcy is its liquidation value, which normally is its wholesale value, and the bank is claiming retail value. But we hesitate to bind parties by concessions made in the heat of oral argument, and shall not do so here. For his part the trustee, though he had proposed a valuation midway between retail and wholesale value and the bankruptcy and district judges had accepted it, has not defended this midpoint as being a proper standard for valuation. He argues that valuation is to be done on an ad hoc basis, case by case, and that since the bankruptcy judge not unreasonably found that splitting the difference would be the "equitable" solution in this case, we are bound by it. It is one thing, however, to say that a uniform standard of valuation must be applied case by case, since application depends on the facts and they are different from case to case. It is another thing to say that there is no standard. Although there is some support in the legislative history for such an approach, H.R. Rep. No. 595, 95th Cong., 2d Sess., at 356 (1978); S. Rep. No. 989, 95th Cong., 2d Sess., at 68 (1978), it would be peculiarly inappropriate to the valuation of Chapter 13 property. These are tiny cases. The debtor usually has few assets. To prevent the costs of bankruptcy litigation from eating up the entire debtor's estate, a simple rule of valuation is needed. Wholesale price is one simple rule; retail price another; the midpoint of the two prices is a third. None is enacted or excluded by the statute. We must decide which is best.
We get little help from the statute. The "value of creditor's interest" clause does not seem to bear on the question at all. "Value" is not defined; and, so far as appears, the word "creditor's" is just meant to remind us that a lien is not coextensive with the property that it is a lien on. The legislative history points both toward and away from equating "creditor's interest" to wholesale value. Compare H.R. Rep. No. 595, supra, at 124, with id. at 356. The clause that we earlier denoted by --"such value shall be determined in light of the purpose of the valuation and of the proposed disposition or use of [the] property"--is somewhat tautological, somewhat opaque, but also somewhat helpful. Of course value should be determined in light of the purpose of the valuation, but the purpose is merely to give the secured creditor the value of his security interest, so we are back to square one. But not entirely. Because that value will differ among the different stages and kinds of ...