                     United States Court of Appeals,

                             Fifth Circuit.

                              No. 93-5396.

         In the Matter of Elray RASH and Jean Rash, Debtors.

            ASSOCIATES COMMERCIAL CORPORATION, Appellant,

                                     v.

                Elray RASH and Jean Rash, Appellees.

                             Sept. 13, 1994.

Appeals from the United States District Court Eastern District of
Texas.

Before REYNALDO G. GARZA, SMITH and PARKER, Circuit Judges.

     JERRY E. SMITH, Circuit Judge:

     The Associates Commercial Corporation ("ACC") appeals the

district   court's    confirmation   of   a   reorganization   plan   under

chapter 13 of the Bankruptcy Code (the "code").                Because the

district court erred as a matter of law in calculating the value of

ACC's secured claim under 11 U.S.C. § 506(a), we reverse.

                                     I.

                                     A.

     On March 30, 1989, Elray and Jean E. Rash1 purchased a

commercial truck at retail value of $73,700 by entering into a

sales agreement and related documents ("loan documents") with Janoe

Truck Sales & Service, Inc., d/b/a Janoe Kenworth Trucks ("Janoe").

The truck served as collateral for the loan.              Rash owns and

operates the truck as part of his freight hauling business.           Janoe

     1
      For simplicity, the Rashes are referred to simply as
"Rash."

                                     1
assigned the loan documents to ACC, which holds a valid lien on the

collateral.

       Under the terms of the loan, Rash was obligated to pay to ACC

$1,610.41 per month for sixty months, maintain the collateral, and

keep it adequately insured.             In February 1992, Rash and ACC agree

to reschedule his obligation upon his agreement to pay $1,408.33

for thirty-six months.

                                          B.

       In March 1992, Rash filed a petition for bankruptcy under

chapter 13. Rash recognized ACC's superior lien on the collateral.

Pursuant to his chapter 13 plan, Rash proposed that ACC retain its

lien   and   be     paid    $607.79     per       month   for   fifty-eight   months,

beginning after confirmation, for a principal total of $28,500,

plus interest at nine percent.                Rash represented in the plan that

the collateral would remain insured but that the proposed payment

"represent[ed] payment of the value of the Collateral in full with

interest over the life of the Plan," which was for five years.

Rash's plan made ACC a partially unsecured creditor that Rash could

treat as holding a partially unsecured claim.                    Rash's plan also set

forth that unsecured creditors "shall receive in pro-rata amounts

all amounts remaining after priority and secured debts are paid."

       On May 1, 1992, ACC filed a motion for relief from stay,

alleging     that    Rash    had   no    equity       in   the    collateral.     ACC

subsequently filed a proof of claim in the secured amount of

$41,171.01.       Rash responded that the value of ACC's collateral was

only $28,500 and that the remainder of ACC's claim was unsecured.


                                              2
ACC challenged Rash's plan as inequitable because it did not pay

ACC what it could have received in a chapter 7 liquidation and

infeasible because it did not conform to the requirements of

chapter 13.

     At a hearing in bankruptcy court, ACC's expert testified that

the market value of the truck was $41,000.                 "Market value" was

defined as "what an individual, average individual off the street"

would pay for the truck, or the price that would be received from

a public auction sale.       Rash's expert testified that market value

should be determined by the wholesale value of the truck, $31,875.

He applied the wholesale value because he said that the difference

between wholesale and retail value represents the margin between a

dealer's costs of marketing, reconditioning, payment of sales

commissions, and a dealer's profit.           Both experts agreed as to the

retail value of the truck;          they just disagreed as to whether the

retail or wholesale value should be used.

     The bankruptcy court adopted the measurement proffered by

Rash's expert.         In line with this value, Rash filed an amended

chapter   13    plan     promising    to     pay     $31,875   in   fifty-eight

installments plus nine percent interest, with the remaining value

of ACC's claim to be paid pro-rata as an unsecured claim.                      The

bankruptcy     court    confirmed    this    plan,   149   B.R.   430,   and   the

district court affirmed.

                                       II.

     Under § 1325(a)(5)(B) of the code, 11 U.S.C. § 1325(a)(5)(B),

a secured creditor must receive the present value of its allowed


                                        3
secured claim under a chapter 13 plan of reorganization.     Unless

the creditor's present value is preserved, confirmation cannot

occur over the creditor's objection.   The allowed secured claim is

determined by 11 U.S.C. § 506(a), which provides, in pertinent

part:

     An allowed claim of a creditor secured by a lien on property
     in which the estate has an interest ... is a secured claim to
     the extent of the value of such creditor's interest in the
     estate's interest in such property ... and is an unsecured
     claim to the extent that the value of such creditor's interest
     ... 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....

     We first look to the text of the statute, construing its terms

according to their plain meaning.   Patterson v. Shumate, --- U.S.

----, ----, 112 S.Ct. 2242, 2246, 119 L.Ed.2d 519 (1992).      Each

term must be given effect so as to avoid rendering an part of the

statute inoperative.   United States v. Nordic Village, Inc., ---

U.S. ----, ----, 112 S.Ct. 1011, 1015, 117 L.Ed.2d 181 (1992);

Reiter v. Sonotone Corp., 442 U.S. 330, 339, 99 S.Ct. 2326, 2331,

60 L.Ed.2d 931 (1979).     If a term is ambiguous, it should be

construed consistently with other terms in the statute so as to

produce a symmetrical whole and avoid creating tension in the

statute.   Federal Power Comm'n v. Panhandle E. Pipe Line Co., 337

U.S. 498, 514, 69 S.Ct. 1251, 1260, 93 L.Ed. 1499 (1949).

     Cases construing § 506(a) have focused on two different

clauses whose relative emphases lead to differing results.   See In

re Green, 151 B.R. 501, 502 (Bankr.D.Minn.1993).   One line of cases

rests on the language of § 506(a)'s first sentence, which provides

that the creditor's claim is secured to the extent of the value of

                                4
its interest in the estate's interest in such property. Under this

approach, the secured creditor is entitled to receive, in the

chapter   13   plan,    the   amount   it   could   have   obtained   if   the

collateral were foreclosed upon and sold by the creditor.

      This "foreclosure approach" was followed by the bankruptcy

and district courts in the current case and in In re Mitchell, 954

F.2d 557 (9th Cir.1992), cert. denied, --- U.S. ----, 113 S.Ct.

303, 121 L.Ed.2d 226 (1992).       But see Lomas Mortgage USA v. Wiese

(In re Wiese), 980 F.2d 1279, 1286 (9th Cir.1992), vacated on other

grounds, --- U.S. ----, 113 S.Ct. 2925, 124 L.Ed.2d 676 (1993)

(suggesting that the decision in Mitchell contradicts the language

of § 506(a) and illogically "allow[s] the debtor to keep the home

but value[s] the secured portion based upon a hypothetical sale of

the residence").       Because the foreclosing creditor is not a dealer

in the property comprising the collateral, it could not resell the

collateral at retail prices.       Thus, its interest is the wholesale

price it would receive by selling the property to a retailer.

Green, 151 B.R. at 504.       Under this approach, the court will also

generally deduct, from the wholesale price, the costs that would be

incurred in executing the resale.

     A second line of cases relies upon the second sentence of §

506(a), which provides that the creditor's lien interest must be

valued in light of the purpose of the valuation and the proposed

disposition or use of the collateral.          "Where the debtor proposes

to retain and use the collateral, and the purpose of the valuation

is to determine the amount that an undersecured creditor will be


                                       5
paid on its secured claim under the debtor's plan, the value of the

creditor's lien is derived from the stream of payments that the

lien   secures,   rather   than   the   right   to   foreclose,    since   no

liquidation of the collateral is contemplated." Green, 151 B.R. at

504.

       Under this "replacement model," the "value of the lien should

be based on the retail value of the collateral since such is the

replacement value to the debtor;         and the costs associated with

sale of the collateral should not be deducted since no sale is

contemplated."    Green, 151 B.R. at 504.       See In re Coker, 973 F.2d

258, 260 (4th Cir.1992);     Brown & Co. Sec. Corp. v. Balbus (In re

Balbus), 933 F.2d 246, 251-52 (4th Cir.1991).           Proponents of the

"replacement cost" approach argue that it is the only one that

gives effect to the entire language of § 506(a), whereas the

foreclosure approach ignores the second sentence of the statute.

       We agree that the replacement cost approach is the only one

that gives full effect to the language of § 506(a).               Under that

subsection, we must consider the "purpose of the valuation" and

"the proposed disposition or use" of the property by the debtor.

"If the first sentence of § 506(a) were interpreted to mean that

the value must be fixed at the amount which the creditor would

receive on foreclosure, then the last sentence of the statute which

provides that the value should be determined in light of the

purpose of the valuation and of the proposed disposition or use of

the property, would be surplusage."       In re Courtright, 57 B.R. 495,

497 (Bankr.D.Or.1986);      see also In re Bergh, 141 B.R. 409, 419


                                    6
(Bankr.D.Minn.1992) (noting that the "key phrase in § 506(a) is

"[s]uch value shall be determined in light of the purpose of the

valuation   and     of   the   proposed       disposition       or    use   of    such

property....' ").

      Moreover, § 506(a) instructs us to value the creditor's

interest according to "the estate's interest" in the property. The

"estate's interest in the property" is the ownership and possession

of the vehicle by the debtor, see Mitchell, 954 F.2d at 561

(Noonan, J., dissenting), and thus the creditor's interest is

derivatively defined by the value of the debtor's interest in the

property.

       If     the   debtor     retains       the     property    as    part      of   a

reorganization, the proper measurement of the estate's interest in

the property is the "going-concern" value of the collateral to the

debtor's reorganization.       The value to the debtor of retaining and

using the property can best be measured by what he would have to

pay to purchase another truck.           See id. (Noonan, J., dissenting).

Under § 506(a), the court must value the collateral in light of its

purpose and proposed use in the reorganization.                 Going concern, or

replacement, value accounts for the debtor's proposed use of the

property, whereas foreclosure value does not.                   "[W]hen a debtor

intends to continue use of creditor's collateral, the Debtors are

acknowledging the value of the collateral to be greater than if

liquidated.    Therefore, creditor's secured claim is entitled to be

valued to the extent of its contribution to the entire estate

vis-a-vis "going concern value'...."               In re Penz, 102 B.R. 826, 828


                                         7
(Bankr.E.D.Okla.1989);     see also In re Reynolds, 17 B.R. 489

(Bankr.N.D.Ga.1981).

      The creditor has a security interest in an income stream

derived from the loan.   Thus, the creditor's interest is the full

amount of its debt, limited only by the estate's interest in the

collateral.   As the court wrote in Green:

     It is true that the plain meaning of the first sentence of
     section 506(a) requires a valuation of the creditor's lien
     interest in the collateral. However, the fact that a lien in
     property gives the lienholder a right to repossess and sell
     the collateral does not automatically mean that the value of
     the lien is equal to the amount that the creditor would
     receive upon disposition of the collateral in satisfaction of
     its lien. It must be remembered that a lien is fundamentally
     a security interest which secures payment of an obligation.
     To value such an interest in property based solely on the
     amount that could be realized upon sale of the collateral
     ignores the value associated with the right to receive the
     stream of payments that the lien secures.

Green, 151 B.R. at 505 (emphasis in original).

      The stream of payments in which the creditor has a security

interest will be greater in nominal value than the value of the

collateral alone because it includes the opportunity cost to ACC of

being forced to continue to tie up money in a loan with Rash,

rather than being able to lend this money to someone else.     The

loss to the creditor is not just the inability to foreclose and

receive the value of the collateral, but includes the inability to

foreclose and then re-lend the money to someone else.     "[I]f he

creditor was not forced to lend to this debtor, then it could lend

those funds to a different borrower.   This is the real cost of the

inability to foreclose."   Todd J. Zywicki, Cramdown and the Code:

Calculating Cramdown Interest Rates Under the Bankruptcy Code, 19


                                 8
T.   MARSHALL   L.J.    241,   262    (1994).              "[V]aluation     based   on   a

hypothetical sale ignores the purpose of the valuation which is to

determine the amount an undersecured creditor will be paid for the

debtor's continued possession and use of the collateral, not to

determine the amount such creditor would receive if it had to

repossess and sell the collateral."                         Green, 151 B.R. at 505

(emphasis added).

         This foregone loan would have been secured by collateral

valued according to its retail value. When Rash initially borrowed

the money to buy the truck, the loan amount was for the retail

price of the truck, not merely the wholesale amount.                        Reducing the

security interest to its wholesale value would allow parties to use

bankruptcy to alter their substantive rights as defined outside

bankruptcy.      Indeed, a debtor could use bankruptcy to knock-down

the secured creditor's interest to wholesale value, then turn

around and resell the collateral at retail blue-book value and

pocket the difference.         Wherever possible, we try to preserve the

terms of the parties' original bargain so that bankruptcy is not

used opportunistically to renegotiate the terms of a voluntary

agreement or to generate a windfall for one party or the other.

See Butner v. United States, 440 U.S. 48, 55, 99 S.Ct. 914, 918, 59

L.Ed.2d 136 (1979).

       Awarding the secured creditor only the wholesale value of the

collateral      would   undercompensate              the    creditor   in   bankruptcy.

Allowing the debtor to decrease the value of its collateral by

filing    bankruptcy      would      lead       to    inefficient      self-protection


                                            9
measures by creditors, such as requiring debtors to put more cash

down at the time of purchase or charging a higher interest rate to

offset the risk that the debtor will file bankruptcy and strip down

the    value    of    the    creditor's      security      interest.       Unable     to

distinguish between good and bad borrowers, creditors will "alter

their behavior towards debtors as a class."                       Zywicki, supra, at

263.     This will actually harm debtors, for, as a result, "[t]he

apparent       pro-debtor     effects       of    the   bankruptcy      rule   will   be

eliminated by the increased rate charged to debtors as a class."

Id.

       It has been suggested that reinstating the secured creditor's

interest to its full retail value would be counterproductive, as it

would    offer       the    debtor     no   relief,      thereby    undermining       the

rehabilitative purposes of chapter 13. Any benefit that this would

provide to debtors, however, would be pyrrhic, as any advantage

gained     in    reorganization         would      be   offset     by   increases     in

downpayments and interest rates at the initial time of the loan.

        Moreover, while reorganization of the debtor is an important

policy goal, this goal cannot be pursued by exterminating a secured

creditor's property interest.               "Reorganization is not a Holy Grail

to be pursued at any length."                    United Sav. Ass'n v. Timbers of

Inwood Forest         Assocs.,       Ltd.   (In    re   Timbers    of   Inwood   Forest

Assocs., Ltd.), 808 F.2d 363, 376-77 (5th Cir.1987) (en banc)

(Clark, C.J., concurring), aff'd, 484 U.S. 365, 108 S.Ct. 626, 98

L.Ed.2d 740 (1988). Secured creditors should not be forced to bear

the burden of the debtor's reorganization.                    But see United Sav.


                                            10
Ass'n v. Timbers of Inwood Forest Assocs., Ltd., 484 U.S. 365, 378-

79, 108 S.Ct. 626, 634, 98 L.Ed.2d 740 (1988) (noting that even if

secured creditors do not bear one kind of reorganization cost, they

may still bear others).

       The   replacement   approach   is    consistent   with   the   Supreme

Court's holding in Timbers of Inwood Forest, see Mitchell, 954 F.2d

at 562 (Noonan, J., dissenting).           In construing § 362(d)(1), the

Court reviewed the similar language of § 506(a), concluding that

"the creditor's "interest in property' [in § 506(a) ] obviously

means his security interest without taking account of his right to

immediate possession of the collateral on default."             484 U.S. at

372.    Thus, the interest being protected by § 506(a) "is merely a

security interest, which is a right to have the collateral applied

in satisfaction of a debt, not a right to immediate possession of

the collateral."     Green, 151 B.R. at 505.

       Thus, retail value is the proper measurement for purposes of

determining an undersecured creditor's allowed amount of a secured

claim under § 506(a). Both wholesale valuation and techniques that

average wholesale and retail values, see, e.g., In re Carlan, 157

B.R. 324 (Bankr.S.D.Tex.1993), undercompensate the secured creditor

and provide an invalid windfall to the debtor.

        Finally, it is argued that profit should be eliminated from

calculations of the value of the creditor's lien.                See In re

Miller, 4 B.R. 392 (Bankr.S.D.Cal.1980).           This is incorrect, as

what is deemed "profit" is actually the opportunity cost of keeping

ACC's money tied up in Rash's loan and the normal return on


                                      11
capital, without which the loan will not be made.     See Zywicki,

supra, at 261-62.

                               III.

     The bankruptcy and district courts erred as a matter of law by

using wholesale instead of retail value to calculate the secured

portion of ACC's claim.    Thus, we REVERSE the district court's

confirmation of the plan and REMAND for recalculation of the

allowed amount of ACC's secured claim for purposes of the plan.




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