by Retail value under NADA, rather than trade-in value, governs valuation of car under section 506(a)(2). In re Burton, No. 17-10979 (Bankr. D. Del. May 16, 2018).
Deborah Burton filed an amended chapter 13 plan in which she listed the value of her secured vehicle as $8,100 and proposed a 5% interest rate. In support of her valuation, Ms. Burton submitted an appraisal from a car dealership stating the vehicle’s trade-in value, taking into account damage and wear. Ally Financial, the secured holder of the car loan, objected to the valuation and the interest rate, arguing that, based on a National Automobile Dealers Association valuation, the vehicle should have been valued at $11,105, and should be repaid at an interest rate of 7%. Both parties maintained that the holding in Assocs. Commercial Corp. v. Rash, 520 U.S. 953 (1997), supported their valuation.
The court entered its ruling in a letter order. The court noted that section 506(a)(2), which codified the Rash decision, instructs that the replacement value of personal property acquired for personal, family or household purposes is, “the price a retail merchant would charge for property of that kind considering the age and condition of the property at the time value is determined.” The court found the NADA valuation objectively determined the appropriate retail value in contrast with the debtor’s valuation which more closely reflected the amount a creditor could hope to obtain through a foreclosure sale—a valuation specifically rejected in Rash. The court, therefore, began with the NADA value of $11,105, deducted $1,200 for exterior damage and reconditioning costs based on Ms. Burton’s appraisal report, and concluded that the appropriate value for the vehicle was $9,905.
Turning to the interest rate, the court noted that, under Till v. SCS Credit Corp., 541 U.S. 465 (2004), the appropriate interest rate is typically 1 – 4% over prime rate with a higher rate reflecting a higher risk of nonpayment, and that the creditor bears the burden of demonstrating that the rate should be adjusted upward. Here, finding Ms. Burton not a high risk of nonpayment, the court split the difference between the rates proposed by the parties and settled on 2% over prime for a total 6% interest rate.