Continuing the Litigation of Collateral Valuation in Bankruptcy: Associates Commercial Corp. v. Rash

Abstract

In 1989, Elray Rash purchased a Kenworth tractor truck for $73,700 that he intended to use with his spouse, Jean Rash, in a contract freight-hauling business. After several years of payment on the truck, the Rashes found themselves unable to stay afloat financially and filed for chapter 13 bankruptcy. Under their bankruptcy plan, the Rashes wanted to retain the truck in order to keep income flowing to them from their business. However, Associates Commercial Corporation (ACC), the creditor who owned the lien on the truck, had other plans for the truck. ACC wanted to sell the truck immediately and not be a part of the Rash's bankruptcy. Under the Bankruptcy Code, the Rashes were permitted to keep the truck, provided they pay to ACC the current value of the truck over the time length of the bankruptcy plan. This is commonly referred to as a debtor's "cram down" power where a debtor retains and pays the current value for collateralized property in a bankruptcy plan over the objection of the secured creditor.

The issue before the Fifth Circuit in Rash was what standard of valuation should be used to determine the value which the Rashes would pay to ACC over the length of the bankruptcy plan. Until the Supreme Court decided Associates Commercial Corp. v. Rash, the circuits had been divided over a replacement value standard, a foreclosure value standard, and a midpoint value standard. The Supreme Court followed the dissent of the Fifth Circuit in In re Rash and other courts by adopting the replacement value standard.