In late December I wrote a pair of posts on the 2016 Bankruptcy Abuse Prevention and Consumer Protection Act Report (BAPCPA Report) that tried to illustrate who chapter 13 bankruptcy debtors are. Although the BAPCPA Report contains several tables for chapter 13, I skipped Table 5, which concerns property valuation orders. In 2016, these orders were very rare in the Eastern District of New York and the Southern District of New York, but there are a few hundred in the other districts in the state. What are these orders and why do they matter for the BAPCPA Report?
Section 506 of the Bankruptcy Code permits parties to determine whether a creditor’s allowed claim is secured at all as well as the value of the creditor’s claim. The value of personal property securing the claim is estimated as the replacement value of the item at the time the debtor filed the petition. Section 1325, which governs chapter 13 and is cited specifically by the BAPCPA Report materials, also states that the bankruptcy court must confirm the chapter 13 plan if the value of property distributed according to each allowed, secured claim is equal to or greater than the respective value of the claims.
Rule of Bankruptcy Procedure 3012 outlines how parties are to ask for a determination of the amount of secured claims. They can do so in one of three ways: a regular motion, an objection to the claim, and in the plan itself. After the request is made, the relevant parties are given notice, and then the bankruptcy court holds a hearing to determine the value of the property. Rule 3012 doesn’t specify what methods the court is to use in valuing the claim, but it will decide based on what evidence the parties present at the hearing.
To answer the second question, why these orders matter for the BAPCPA Report, the best answer is that the report wants to show that the plans are being properly confirmed based on the valuations of the debtors’ assets. Alternatively, they can show where creditors might be contesting debtors’ low-ball valuations of their homes for the purpose of stripping underwater junior liens. Looking at Table 5, it’s clear that these orders predominantly appear in one state: Florida.
The 2016 BAPCPA Report is here.
Property valuation disagreements aren’t common in New York bankruptcy. As a result, debtors will want to consult with an experienced New York bankruptcy lawyer to ensure their properties are properly appraised before they file.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.