Bankruptcy Forms: Filing Bankruptcy Chapter 7 Bankruptcy Software Chapter 13

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TITLE 11–BANKRUPTCY

CHAPTER 5–CREDITORS, THE DEBTOR, AND THE ESTATE

Sub Chapter – Creditors and Claims

Sec. 506. Determination of secured status

   (a) An allowed claim of a creditor secured by a lien on property in 
which the estate has an interest, or that is subject to setoff under 
section 553 of this title, is a secured claim to the extent of the value 
of such creditor's interest in the estate's interest in such property, 
or to the extent of the amount subject to setoff, as the case may be, 
and is an unsecured claim to the extent that the value of such 
creditor's interest or the amount so subject to setoff is less than the 
amount of such 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, and in conjunction with any hearing on such disposition 
or use or on a plan affecting such creditor's interest.
    (b) To the extent that an allowed secured claim is secured by 
property the value of which, after any recovery under subsection (c) of 
this section, is greater than the amount of such claim, there shall be 
allowed to the holder of such claim, interest on such claim, and any 
reasonable fees, costs, or charges provided for under the agreement 
under which such claim arose.
    (c) The trustee may recover from property securing an allowed 
secured claim the reasonable, necessary costs and expenses of 
preserving, or disposing of, such property to the extent of any benefit 
to the holder of such claim.
    (d) To the extent that a lien secures a claim against the debtor 
that is not an allowed secured claim, such lien is void, unless--
        (1) such claim was disallowed only under section 502(b)(5) or 
    502(e) of this title; or
        (2) such claim is not an allowed secured claim due only to the 
    failure of any entity to file a proof of such claim under section 
    501 of this title.

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2583; Pub. L. 98-353, title III, 
Sec. 448, July 10, 1984, 98 Stat. 374.)


                      Historical and Revision Notes

                         legislative statements

    Section 506(a) of the House amendment adopts the provision contained 
in the Senate amendment and rejects a contrary provision as contained in 
H.R. 8200 as passed by the House. The provision contained in the Senate 
amendment and adopted by the House amendment recognizes that an amount 
subject to set-off is sufficient to recognize a secured status in the 
holder of such right. Additionally a determination of what portion of an 
allowed claim is secured and what portion is unsecured is binding only 
for the purpose for which the determination is made. Thus determinations 
for purposes of adequate protection is not binding for purposes of 
``cram down'' on confirmation in a case under chapter 11.
    Section 506(b) of the House amendment adopts language contained in 
the Senate amendment and rejects language contained in H.R. 8200 as 
passed by the House. If the security agreement between the parties 
provides for attorneys' fees, it will be enforceable under title 11, 
notwithstanding contrary law, and is recoverable from the collateral 
after any recovery under section 506(c).
    Section 506(c) of the House amendment was contained in H.R. 8200 as 
passed by the House and adopted, verbatim, in the Senate amendment. Any 
time the trustee or debtor in possession expends money to provide for 
the reasonable and necessary cost and expenses of preserving or 
disposing of a secured creditor's collateral, the trustee or debtor in 
possession is entitled to recover such expenses from the secured party 
or from the property securing an allowed secured claim held by such 
party.
    Section 506(d) of the House amendment is derived from H.R. 8200 as 
passed by the House and is adopted in lieu of the alternative test 
provided in section 506(d) of the Senate amendment. For purposes of 
section 506(d) of the House amendment, the debtor is a party in 
interest.
    Determination of Secured Status: The House amendment deletes section 
506(d)(3) of the Senate amendment, which insures that a tax lien 
securing a nondischargeable tax claim is not voided because a tax 
authority with notice or knowledge of the bankruptcy case fails to file 
a claim for the liability (as it may elect not to do, if it is clear 
there are insufficient assets to pay the liability). Since the House 
amendment retains section 506(d) of the House bill that a lien is not 
voided unless a party in interest has requested that the court determine 
and allow or disallow the claim, provision of the Senate amendment is 
not necessary.


                        senate report no. 95-989

    Subsection (a) of this section separates an undersecured creditor's 
claim into two parts: He has a secured claim to the extent of the value 
of his collateral; and he has an unsecured claim for the balance of his 
claim. The subsection also provides for the valuation of claims which 
involve setoffs under section 553. While courts will have to determine 
value on a case-by-case basis, the subsection makes it clear that 
valuation is to be determined in light of the purpose of the valuation 
and the proposed disposition or use of the subject property. This 
determination shall be made in conjunction with any hearing on such 
disposition or use of property or on a plan affecting the creditor's 
interest. To illustrate, a valuation early in the case in a proceeding 
under sections 361-363 would not be binding upon the debtor or creditor 
at the time of confirmation of the plan. Throughout the bill, references 
to secured claims are only to the claim determined to be secured under 
this subsection, and not to the full amount of the creditor's claim. 
This provision abolishes the use of the terms ``secured creditor'' and 
``unsecured creditor'' and substitutes in their places the terms 
``secured claim'' and ``unsecured claim.''
    Subsection (b) codifies current law by entitling a creditor with an 
oversecured claim to any reasonable fees (including attorney's fees), 
costs, or charges provided under the agreement under which the claim 
arose. These fees, costs, and charges are secured claims to the extent 
that the value of the collateral exceeds the amount of the underlying 
claim.
    Subsection (c) also codifies current law by permitting the trustee 

to recover from property the value of which is greater than the sum of 
the claims secured by a lien on that property the reasonable, necessary 
costs and expenses of preserving, or disposing of, the property. The 
recovery is limited to the extent of any benefit to the holder of such 
claim.
    Subsection (d) provides that to the extent a secured claim is not 
allowed, its lien is void unless the holder had neither actual notice 
nor knowledge of the case, the lien was not listed by the debtor in a 
chapter 9 or 11 case or such claim was disallowed only under section 
502(e).


                         house report no. 95-595

    Subsection (d) permits liens to pass through the bankruptcy case 
unaffected. However, if a party in interest requests the court to 
determine and allow or disallow the claim secured by the lien under 
section 502 and the claim is not allowed, then the lien is void to the 
extent that the claim is not allowed. The voiding provision does not 
apply to claims disallowed only under section 502(e), which requires 
disallowance of certain claims against the debtor by a codebtor, surety, 
or guarantor for contribution or reimbursement.


                               Amendments

    1984--Subsec. (b). Pub. L. 98-353, Sec. 448(a), inserted ``for'' 
after ``provided''.
    Subsec. (d)(1). Pub. L. 98-353, Sec. 448(b), substituted ``such 
claim was disallowed only under section 502(b)(5) or 502(e) of this 
title'' for ``a party in interest has not requested that the court 
determine and allow or disallow such claim under section 502 of this 
title''.
    Subsec. (d)(2). Pub. L. 98-353, Sec. 448(b), substituted ``such 
claim is not an allowed secured claim due only to the failure of any 
entity to file a proof of such claim under section 501 of this title'' 
for ``such claim was disallowed only under section 502(e) of this 
title''.


                    Effective Date of 1984 Amendment

    Amendment by Pub. L. 98-353 effective with respect to cases filed 90 
days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out 
as a note under section 101 of this title.

                  Section Referred to in Other Sections

    This section is referred to in sections 106, 349, 522, 551, 552, 
901, 1111, 1123, 1222, 1322 of this title.


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