was secured only to the extent of the value of the collateral; its claim over and above the value of
the truck was unsecured.
The Rashes' Chapter 13 plan invoked the cram down power. It proposed that the Rashes
retain the truck for use in the freight-hauling business and pay ACC, over 58 months, an amount
equal to the present value of the truck. That value, the Rashes' petition alleged, was $28,500. ACC
objected to the plan and asked the Bankruptcy Court to lift the automatic stay so ACC could
repossess the truck. ACC also filed a proof of claim alleging that its claim was fully secured in the
amount of $41,171. The Rashes filed an objection to ACC's claim.
The Bankruptcy Court held an evidentiary hearing to resolve the dispute over the truck's
value. At the hearing, ACC and the Rashes urged different valuation benchmarks. ACC maintained
that the proper valuation was the price the Rashes would have to pay to purchase a like vehicle, an
amount ACC's expert estimated to be $41,000. The Rashes, however, maintained that the proper
valuation was the net amount ACC would realize upon foreclosure and sale of the collateral, an
amount their expert estimated to be $31,875.
Courts of Appeals have adopted three different standards for valuing a security interest in
a bankruptcy proceeding when the debtor invokes the cram down power to retain the collateral
over the creditor's objection. In contrast to the Fifth Circuit's foreclosure-value standard, a number
of Circuits have followed a replacement-value approach. Other courts have settled on the midpoint
between foreclosure value and replacement value. We granted certiorari to resolve this conflict.
Over ACC's objection, the Rashes' repayment plan proposed, pursuant to § 1325(a)(5)(B),
continued use of the property in question, i. e., the truck, in the debtor's trade or business. In such
a "cram down" case, we hold, the value of the property (and thus the amount of the secured claim
under § 506(a)) is the price a willing buyer in the debtor's trade, business, or situation would pay
to obtain like property from a willing seller. . . .
The second sentence of § 506(a) does speak to the how question. "Such value," that
sentence provides, "shall be determined in light of the purpose of the valuation and of the proposed
disposition or use of such property." § 506(a). By deriving a foreclosure-value standard from §
506(a)'s first sentence, the Fifth Circuit rendered inconsequential the sentence that expressly
addresses how "value shall be determined."
As we comprehend § 506(a), the "proposed disposition or use" of the collateral is of
paramount importance to the valuation question. If a secured creditor does not accept a debtor's
Chapter 13 plan, the debtor has two options for handling allowed secured claims: surrender the
collateral to the creditor, or, under the cram down option, keep the collateral over the creditor's
objection and provide the creditor, over the life of the plan, with the equivalent of the present value
of the collateral. The "disposition or use" of the collateral thus turns on the alternative the debtor
chooses - in one case the collateral will be surrendered to the creditor, and in the other, the
collateral will be retained and used by the debtor. Applying a foreclosure-value standard when the
cram down option is invoked attributes no significance to the different consequences of the debtor's
choice to surrender the property or retain it. A replacement-value standard, on the other hand,
distinguishes retention from surrender and renders meaningful the key words "disposition or use."
Tying valuation to the actual "disposition or use" of the property points away from a
foreclosure-value standard when a Chapter 13 debtor, invoking cram down power, retains and uses
the property. Under that option, foreclosure is averted by the debtor's choice and over the creditor's