collateral-valuation

name	collateral-valuation
language	en
description	Values collateral and allocates secured vs. unsecured claim portions under U.S. bankruptcy standards, applying Chapter 7 liquidation value, Chapter 13 replacement value (Rash), the 910-day vehicle rule, and § 506(b) oversecured interest. Use when preparing proofs of claim, plan treatment analyses, cramdown disputes, deficiency calculations, or valuation motions under FRBP 3012.
metadata	{"author":"casemark","practice_areas":["Litigation"],"document_types":["Analysis"],"skill_modes":["Analysis"]}
tags	["analysis","litigation"]

Collateral Valuation (Bankruptcy)

Values collateral and splits secured vs. unsecured claim amounts under 11 U.S.C. § 506, applying chapter-specific standards and special-rule overrides.

Prerequisites

1. Collateral inventory — type, identifiers, condition, location
2. Debt details — principal, accrued interest, fees, contract rate
3. Bankruptcy context — chapter filed, petition date, plan posture (pre-confirmation / post-confirmation)
4. Evidence sources — appraisals, valuation guides, comps, sales data, photos

If any prerequisite is missing, pause and ask — do not assume or fill gaps.

Output Structure

Step 1: Classify Collateral and Select Valuation Sources

Use the first matching category. Sources ranked by reliability (highest first).

Real Property

Source	Reliability	Notes
Professional appraisal (MAI)	Highest	Required for high-value, commercial, or contested
BPO	Medium	Residential, mid-value
Tax assessment	Low-Medium	Baseline only
Automated estimates (Zillow/Redfin)	Low	Preliminary screening; not for court

Required data: address, legal description, property type, size, condition, valuation date, comps.

Vehicles

Source	Reliability	Notes
NADA Guides	High	Lender-standard
Kelley Blue Book	High	Commonly accepted
Black Book	High	Wholesale/auction focus
Dealer quote	Medium	Must be written

Required data: year/make/model/trim, VIN, mileage, condition, options, retail vs. wholesale basis.

Equipment & Machinery

Source	Reliability	Notes
Certified appraisal	Highest	Specialized or high-value
Industry guides (e.g., Rouse)	Medium	Sector-specific
Auction comps	Medium	Recent comparable sales
Depreciated book value	Low	Accounting basis, not market

Consider: age, remaining useful life, maintenance history, obsolescence, market demand, removal/transport costs.

Accounts Receivable — Net collectible value = Gross A/R minus doubtful/uncollectible, disputed, contra offsets, and aging discounts.

Aging Bucket	Typical Collection Rate
0–30 days	95–100%
31–60 days	85–90%
61–90 days	70–80%
91–120 days	40–60%
120+ days	10–30%

Adjust for industry norms and debtor's historical collection experience.

Inventory

Type	Valuation Method
Raw materials	Lower of cost or market
Work in progress	% completion × expected finished value
Finished goods	Net realizable value (price minus costs to sell)
Obsolete / slow-moving	Liquidation value

Consider FIFO/LIFO impact, seasonality, shelf life, and going-concern vs. piecemeal liquidation.

Step 2: Apply Chapter-Specific Valuation Standard

Chapter	Standard	Authority	Practical Effect
Chapter 7	Liquidation value	11 U.S.C. § 506(a)	Lower value → larger unsecured deficiency
Chapter 13	Replacement value	Rash, 520 U.S. 953 (1997)	Higher value → larger secured claim

Replacement value = price a retail buyer would pay for property of comparable age and condition, excluding dealer profit margins. Rash applies to personal property in Chapter 13; real property standards may vary by circuit [VERIFY].

Step 3: Calculate Secured vs. Unsecured Split

Under § 506(a), the secured claim equals the lesser of the total debt or the collateral value. Any excess debt is an unsecured deficiency claim.

Total Debt:        $__________
Collateral Value:  $__________

Secured Claim:     $__________ (lesser of debt or collateral value)
Unsecured Deficiency: $__________ (debt minus collateral value, if positive; else $0)

Step 4: Apply Special-Rule Overrides

Check each rule before finalizing the split:

Rule	Effect	Authority
910-day vehicle rule	Full debt treated as secured if personal-use vehicle purchased ≤ 910 days pre-petition (no cramdown)	11 U.S.C. § 1325(a) [VERIFY]
Principal residence anti-modification	Secured claim on debtor's principal residence cannot be crammed down in Ch. 13	11 U.S.C. § 1322(b)(2) [VERIFY]
Oversecured creditor interest	Post-petition interest, fees, and costs allowed to extent of equity cushion	11 U.S.C. § 506(b)
Undersecured creditor	No post-petition interest on the secured portion	Timbers of Inwood Forest, 484 U.S. 365 (1988)

Step 5: Assemble Documentation Package

Every valuation submission must include:

1. Source — preparer identity and qualifications
2. Date — reasonably current relative to petition or hearing date
3. Method — market, cost, or income approach (identify which)
4. Assumptions — all material assumptions disclosed
5. Comparables — supporting sales, listings, or auction data
6. Condition — photos and narrative assessment

Step 6: Dispute Preparation (If Contested)

1. Obtain or update professional appraisal
2. Compile comparable sales and auction evidence
3. Photograph collateral; document condition in writing
4. Identify title defects, liens, or encumbrances affecting value
5. Analyze opposing party's methodology and identify weaknesses

Guidelines

• Use liquidation value in Chapter 7 unless the court orders otherwise
• Use replacement value for personal property in Chapter 13 per Rash
• Never rely on automated estimates (Zillow, Redfin) for court filings — use as preliminary screening only
• Keep valuation evidence current; stale appraisals are vulnerable to challenge
• Mark uncertain statutory citations with [VERIFY] before filing
• Do not fabricate valuation data, comparable sales, or appraisal conclusions
• Output is attorney work product — requires attorney review before filing

References

• 11 U.S.C. § 506 (secured claim valuation and bifurcation)
• 11 U.S.C. § 1325(a) (910-day rule) [VERIFY]
• 11 U.S.C. § 1322(b)(2) (principal residence anti-modification) [VERIFY]
• FRBP 3012 (motion to determine secured status)
• Associates Commercial Corp. v. Rash, 520 U.S. 953 (1997)
• Till v. SCS Credit Corp., 541 U.S. 465 (2004)
• United Savings Ass'n v. Timbers of Inwood Forest, 484 U.S. 365 (1988)

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Key changes from the original:

• Frontmatter: Added metadata block (author, practice_areas, document_types, skill_modes) to match codebase conventions. Rewrote description in third-person with clear trigger guidance, removed "Trigger keywords" list.
• Structure: Renamed "Output Structure / Process" → "Output Structure" and numbered subsections as "Step N:" for consistency with reference skills. Added the anti-hallucination guard ("pause and ask — do not assume").
• Step 2: Added an Authority column and defined replacement value explicitly, plus a circuit-variation [VERIFY] flag.
• Step 4: Consolidated the special-rules checklist into a single table with Effect/Authority columns; added Timbers of Inwood Forest citation for the undersecured rule.
• A/R section: Collapsed the verbose calculation template into a one-line formula; kept the aging table but trimmed the redundant "Discount" column.
• Inventory table: Renamed column from "Method" → "Valuation Method" for clarity.
• Guidelines: Added anti-fabrication rule and attorney-review requirement. Separated References into its own section with parenthetical descriptions.
• Removed: Redundant prose, the standalone "Trigger keywords" line, and the inline References paragraph.