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#2356 signed 8-28-97



In re:




CASE NO. 97-40682-13



This matter is before the Court to determine the value of the debtors' 1996 Chevrolet pickup truck. The debtors appear by counsel Melvin L. Schmidt. Creditor General Motors Acceptance Corporation (GMAC) appears by counsel T. Christian Cox. The Court has reviewed the relevant pleadings, heard evidence and arguments, and is now ready to rule.


On June 24, 1996, when the truck was new, the debtors bought it from an automobile dealership for $19,074, paying nothing down and financing the purchase through GMAC. As part of the deal, they also financed the purchase of credit life insurance for $640.74. The sale contract identifies the truck as a "Chevrolet C-1500 Tru" pickup. The debtors filed for bankruptcy about nine months later. In their schedules, they listed GMAC as a creditor secured by the truck and listed the market value of the truck as $16,450. GMAC filed a proof of claim indicating it was owed $19,148.59 on a claim secured by a truck with an "FMV" of $19,415.74. The proof of claim does not mention the insurance policy.

In their chapter 13 plan, the debtors proposed to retain the truck and pay GMAC the market value they attributed to the truck. GMAC objected to the plan, asserting that the truck was worth $19,415.74, but now indicating this value included the value of the insurance policy. GMAC indicated the debtors would be entitled to a credit for a rebate that would be made if they canceled the policy. The debtors thereafter modified their plan to, among other things, increase the value of GMAC's collateral to $17,500. Nothing in the record indicates whether the insurance policy has been canceled or the amount of the rebate that would be paid if it were.

At a hearing on July 29, GMAC argued the proper value of the truck for purposes of the debtors' plan was $19,375, while the debtors contended it was $17,500. The parties presented evidence about the truck's value, consisting of a "vehicle worksheet" whose creator is not identified, a copy of part of the installment contract the debtors signed to buy the truck, and two written appraisals. The installment contract shows the debtors bought the truck for $19,074 and credit life insurance for $640.74, paying nothing down.

The unattributed worksheet appears to specify a wholesale value of $15,175, a retail value of $17,725, and a "market value" of $16,450. A number of things about the worksheet indicate the debtors' attorney may have prepared it, but the parties have not advised the Court if this is so and simply submitted it along with the two reports which are at least clearly identified as appraisals.

The debtors had the truck appraised in June 1997 by the general manager of the dealership where they bought it, although that person's signature is not very legible and his or her name is not otherwise included in the report. This person identified the truck as a "96 Chevrolet C-1500 2 WD pickup" with 21,932 miles on it, and stated the highest price the debtors could sell the truck for was $17,500. The appraiser did not explain how this value was determined.

GMAC had the truck appraised about six weeks later by someone called "Auto Damage Appraisers." The person who actually did the appraisal is not identified and has not signed it. The report is directed to "Jennie" and includes the notation "Inspected by: Troy Rader," presumably meaning Mr. Rader at least inspected the truck and perhaps suggesting he did the appraisal as well. This report identifies the truck as a Chevrolet "1500 Ext. Cab Short Bed" with 25,242 miles on it. GMAC's appraiser calculated a retail and a wholesale value for the truck. For the retail value, the appraiser determined a "retail book value" of $19,375 based on the July 1997 Central edition NADA book (including a deduction for mileage), a "retail market value" of $20,833 that is actually an average of three quotes obtained from dealers, only one of which reported having such a truck in stock, and a "recommended ACV" of $20,468.50 which was calculated by averaging the "book" value and the three dealer quotes. The printed portions of the form seem to indicate the "recommended ACV" is the final value the appraiser assigned to the truck. However, some handwritten marks on the report seem to indicate the appraiser (or perhaps someone else) reached a different conclusion. The three values are circled, and the "retail market value" and the "recommended ACV" are marked through with large Xs and the words "More than it cost" are written beside them. This leaves the "retail book value" as the only one not apparently rejected by whoever made the handwritten marks. Of course, even that value exceeds the amount the debtors paid for their truck, though not as much as the other two values do.

On a second sheet, GMAC's appraiser followed a similar procedure to determine a wholesale value for the truck. This sheet shows a "wholesale book value" of $16,675, a "wholesale market value" of $17,919.67 from dealer quotes, and a "recommended ACV wholesale" of $17,608.50 which was calculated by averaging the book value and the quotes. Again, some handwritten marks are made on this sheet, including a circle around the "wholesale book value" and a circle around and an X through the "recommended ACV wholesale." The "wholesale market value" is not marked at all.

Due to the conflicting descriptions of the truck, the Court directed the parties to confer and inform the Court whether the truck is an extended cab or regular pickup. They have now submitted a letter indicating it is an extended cab, short bed truck. This type of pickup is worth somewhat more than a regular one.


The Supreme Court recently ruled that chapter 13 debtors seeking to retain collateral over their secured creditor's objection must pay the "replacement value" of the property to satisfy the requirements of 11 U.S.C.A. §1325(a)(5)(B), commonly known as a "cram down" provision. Associates Commercial Corp. v. Rash, __ U.S. ___, 117 S.Ct. 1879, 138 L.Ed.2d 148 (1997). The Court relegated most of its explanation of the meaning of "replacement value" to two footnotes. First, the Court said: "[B]y replacement value, we mean the price a willing buyer in the debtor's trade, business, or situation would pay a willing seller to obtain property of like age and condition." Slip op. at 5, n. 2. Later, the Court added,

Our recognition that the replacement-value standard, not the foreclosure-value standard, governs in cram down cases leaves to the bankruptcy courts, as triers of fact, identification of the best way of ascertaining replacement value on the basis of the evidence presented. Whether replacement value is the equivalent of retail value, wholesale value, or some other value will depend on the type of debtor and the nature of the property. We note, however, that replacement value, in this context, should not include certain items. For example, where the proper measure of the replacement value of a vehicle is its retail value, an adjustment to that value may be necessary: A creditor should not receive portions of the retail price, if any, that reflect the value of items the debtor does not receive when he retains his vehicle, items such as warranties, inventory storage, and reconditioning. Cf. [Associates Commercial Corp. v. Rash (In re Rash,)] 90 F.3d [1036,] 1051-1052 [5th Cir. 1996)]. Nor should the creditor gain from modifications to the property--e.g., the addition of accessories to a vehicle--to which a creditor's lien would not extend under state law.

Slip op. at 11-12, n. 6. Nothing presented to the Court indicates the debtors use this truck for business purposes. Presumably, it is merely their means of conveyance. This indicates the ordinary vehicle market should be the starting place for determining a value for the truck.

The evidence the parties have presented is less than satisfactory. GMAC asks the Court to believe the truck is worth more than the debtors paid for it thirteen months ago. Because vehicles nearly always decrease in value over time, especially when they are being driven on the roads enough to be subject to a mileage deduction in the NADA valuing system, the Court would have to hear a fairly convincing explanation before it could agree a vehicle it must evaluate had instead increased in value. Here, GMAC has offered no explanation at all to support its unusual claim. On the other hand, GMAC's appraiser at least offered some explanation for the values stated; the debtors' appraiser offered none.

Since the NADA book GMAC's appraiser used apparently does show a higher retail price for the truck than the debtors paid thirteen months ago, the debtors were apparently able to buy it at a substantial discount from the going retail price. This indicates they would not be willing buyers at the current full retail price, but would expect to bargain for and obtain another discount. Under the circumstances, the Court concludes the proper replacement value for the debtors' truck for purposes of cram down under §1325(a)(5)(B) is $18,500. This value does not include any amount attributable to the credit life insurance policy, so any rebate paid on cancellation should be applied first to the unsecured portion of GMAC's claim. The debtors will need to modify their plan to reflect this increased value for the truck.


Dated at Topeka, Kansas, this _____ day of August, 1997.





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