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
- Collateral inventory — type, identifiers, condition, location
- Debt details — principal, accrued interest, fees, contract rate
- Bankruptcy context — chapter filed, petition date, plan posture (pre-confirmation / post-confirmation)
- 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:
- Source — preparer identity and qualifications
- Date — reasonably current relative to petition or hearing date
- Method — market, cost, or income approach (identify which)
- Assumptions — all material assumptions disclosed
- Comparables — supporting sales, listings, or auction data
- Condition — photos and narrative assessment
Step 6: Dispute Preparation (If Contested)
- Obtain or update professional appraisal
- Compile comparable sales and auction evidence
- Photograph collateral; document condition in writing
- Identify title defects, liens, or encumbrances affecting value
- 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)
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.
1---2name: collateral-valuation3description: 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 3012.4license: Apache-2.05---67# Collateral Valuation (Bankruptcy)89Values collateral and splits secured vs. unsecured claim amounts under 11 U.S.C. § 506, applying chapter-specific standards and special-rule overrides.1011## Prerequisites12131. **Collateral inventory** — type, identifiers, condition, location142. **Debt details** — principal, accrued interest, fees, contract rate153. **Bankruptcy context** — chapter filed, petition date, plan posture (pre-confirmation / post-confirmation)164. **Evidence sources** — appraisals, valuation guides, comps, sales data, photos1718If any prerequisite is missing, pause and ask — do not assume or fill gaps.1920## Output Structure2122### Step 1: Classify Collateral and Select Valuation Sources2324Use the first matching category. Sources ranked by reliability (highest first).2526**Real Property**2728| Source | Reliability | Notes |29|---|---|---|30| Professional appraisal (MAI) | Highest | Required for high-value, commercial, or contested |31| BPO | Medium | Residential, mid-value |32| Tax assessment | Low-Medium | Baseline only |33| Automated estimates (Zillow/Redfin) | Low | Preliminary screening; not for court |3435Required data: address, legal description, property type, size, condition, valuation date, comps.3637**Vehicles**3839| Source | Reliability | Notes |40|---|---|---|41| NADA Guides | High | Lender-standard |42| Kelley Blue Book | High | Commonly accepted |43| Black Book | High | Wholesale/auction focus |44| Dealer quote | Medium | Must be written |4546Required data: year/make/model/trim, VIN, mileage, condition, options, retail vs. wholesale basis.4748**Equipment & Machinery**4950| Source | Reliability | Notes |51|---|---|---|52| Certified appraisal | Highest | Specialized or high-value |53| Industry guides (e.g., Rouse) | Medium | Sector-specific |54| Auction comps | Medium | Recent comparable sales |55| Depreciated book value | Low | Accounting basis, not market |5657Consider: age, remaining useful life, maintenance history, obsolescence, market demand, removal/transport costs.5859**Accounts Receivable** — Net collectible value = Gross A/R minus doubtful/uncollectible, disputed, contra offsets, and aging discounts.6061| Aging Bucket | Typical Collection Rate |62|---|---|63| 0–30 days | 95–100% |64| 31–60 days | 85–90% |65| 61–90 days | 70–80% |66| 91–120 days | 40–60% |67| 120+ days | 10–30% |6869Adjust for industry norms and debtor's historical collection experience.7071**Inventory**7273| Type | Valuation Method |74|---|---|75| Raw materials | Lower of cost or market |76| Work in progress | % completion × expected finished value |77| Finished goods | Net realizable value (price minus costs to sell) |78| Obsolete / slow-moving | Liquidation value |7980Consider FIFO/LIFO impact, seasonality, shelf life, and going-concern vs. piecemeal liquidation.8182### Step 2: Apply Chapter-Specific Valuation Standard8384| Chapter | Standard | Authority | Practical Effect |85|---|---|---|---|86| Chapter 7 | Liquidation value | 11 U.S.C. § 506(a) | Lower value → larger unsecured deficiency |87| Chapter 13 | Replacement value | *Rash*, 520 U.S. 953 (1997) | Higher value → larger secured claim |8889Replacement 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].9091### Step 3: Calculate Secured vs. Unsecured Split9293Under § 506(a), the secured claim equals the lesser of the total debt or the collateral value. Any excess debt is an unsecured deficiency claim.9495```96Total Debt: $__________97Collateral Value: $__________9899Secured Claim: $__________ (lesser of debt or collateral value)100Unsecured Deficiency: $__________ (debt minus collateral value, if positive; else $0)101```102103### Step 4: Apply Special-Rule Overrides104105Check each rule before finalizing the split:106107| Rule | Effect | Authority |108|---|---|---|109| **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] |110| **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] |111| **Oversecured creditor interest** | Post-petition interest, fees, and costs allowed to extent of equity cushion | 11 U.S.C. § 506(b) |112| **Undersecured creditor** | No post-petition interest on the secured portion | *Timbers of Inwood Forest*, 484 U.S. 365 (1988) |113114### Step 5: Assemble Documentation Package115116Every valuation submission must include:1171181. **Source** — preparer identity and qualifications1192. **Date** — reasonably current relative to petition or hearing date1203. **Method** — market, cost, or income approach (identify which)1214. **Assumptions** — all material assumptions disclosed1225. **Comparables** — supporting sales, listings, or auction data1236. **Condition** — photos and narrative assessment124125### Step 6: Dispute Preparation (If Contested)1261271. Obtain or update professional appraisal1282. Compile comparable sales and auction evidence1293. Photograph collateral; document condition in writing1304. Identify title defects, liens, or encumbrances affecting value1315. Analyze opposing party's methodology and identify weaknesses132133## Guidelines134135- Use liquidation value in Chapter 7 unless the court orders otherwise136- Use replacement value for personal property in Chapter 13 per *Rash*137- Never rely on automated estimates (Zillow, Redfin) for court filings — use as preliminary screening only138- Keep valuation evidence current; stale appraisals are vulnerable to challenge139- Mark uncertain statutory citations with `[VERIFY]` before filing140- Do not fabricate valuation data, comparable sales, or appraisal conclusions141- Output is attorney work product — requires attorney review before filing142143## References144145- 11 U.S.C. § 506 (secured claim valuation and bifurcation)146- 11 U.S.C. § 1325(a) (910-day rule) [VERIFY]147- 11 U.S.C. § 1322(b)(2) (principal residence anti-modification) [VERIFY]148- FRBP 3012 (motion to determine secured status)149- *Associates Commercial Corp. v. Rash*, 520 U.S. 953 (1997)150- *Till v. SCS Credit Corp.*, 541 U.S. 465 (2004)151- *United Savings Ass'n v. Timbers of Inwood Forest*, 484 U.S. 365 (1988)152153---154155Key changes from the original:156157- **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.158- **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").159- **Step 2**: Added an Authority column and defined replacement value explicitly, plus a circuit-variation `[VERIFY]` flag.160- **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.161- **A/R section**: Collapsed the verbose calculation template into a one-line formula; kept the aging table but trimmed the redundant "Discount" column.162- **Inventory table**: Renamed column from "Method" → "Valuation Method" for clarity.163- **Guidelines**: Added anti-fabrication rule and attorney-review requirement. Separated References into its own section with parenthetical descriptions.164- **Removed**: Redundant prose, the standalone "Trigger keywords" line, and the inline References paragraph.