520 U.S. 953 (1997)
In 1989, respondent Elray Rash purchased for $73,700 a Kenworth tractor truck for use in his freight-hauling business.1 Rash made a downpayment on the truck, agreed to pay the seller the remainder in 60 monthly installments, and pledged the truck as collateral on the unpaid balance. The seller assigned the loan, and its lien on the truck, to petitioner Associates Commercial Corporation.2
In March 1992, Elray and Jean Rash filed a joint petition and a repayment plan under Chapter 13 of the Bankruptcy Code.3 At the time of the bankruptcy filing, the balance owed to ACC on the truck loan was $41,171.4 The Rashes' Chapter 13 plan invoked the cram down power and 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, alleged to be $28,500.5 ACC objected to the plan and filed a proof of claim alleging that its claim was fully secured in the amount of $41,171.6
The Bankruptcy Court held an evidentiary hearing to resolve the dispute over the truck's value.7 At the hearing, ACC maintained that the proper valuation was the price the Rashes would have to pay to purchase a like vehicle, an amount its expert estimated to be $41,000.8 The Rashes 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 $31,875.9 The Bankruptcy Court fixed the amount of ACC's secured claim at $31,875 and approved the plan. The United States District Court for the Eastern District of Texas affirmed.10
A panel of the Court of Appeals for the Fifth Circuit reversed. On rehearing en banc, however, the Fifth Circuit affirmed the District Court, holding that ACC's allowed secured claim was limited to $31,875, the net foreclosure value of the truck.11 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.12 The Supreme Court granted certiorari to resolve this conflict among the Courts of Appeals.13
Whether the value of collateral that a Chapter 13 debtor seeks to retain and use over a secured creditor's objection is to be determined by the foreclosure-value standard, the replacement-value standard, or the midpoint between those measurements?14
Section 506(a) of the Bankruptcy Code provides that an allowed secured claim is limited to the value of the creditor's interest in the estate's interest in the property.15 Such value shall be determined in light of the purpose of the valuation and of the proposed disposition or use of such property.16
Yes. The Rashes invoked the cram down option under section 1325(a)(5)(B) to retain the truck for continued use in their freight-hauling business rather than surrendering it to ACC. Because the proposed disposition or use is retention and active use by the debtor, section 506(a) requires valuation at replacement value, the price a willing buyer in the debtor's trade or business would pay a willing seller for like property, rather than the foreclosure value of $31,875 or any midpoint between foreclosure and replacement values.17
The replacement-value standard governs valuation of the collateral when the debtor retains and uses it pursuant to the cram down power.18
Related opinions on this issue
Justice Stevens dissented.19 He contended that the text of section 506(a) points to foreclosure as the proper valuation method. This is because it directs courts to determine the value of the creditor's interest in the estate's interest in the property from the creditor's perspective.20 He reasoned that the purpose of the cram down provision is to place the creditor in the same position as if able to foreclose.21
Permitting recovery above foreclosure value would grant an unwarranted windfall to undersecured creditors at the expense of unsecured creditors. This approach remains consistent across bankruptcy chapters.22