Chapter 7 of the Bankruptcy Code' (the Code) serves a distributive function; it is designed to distribute equitably a debtor's assets from the bankruptcy estate to creditors. All nonexempt as-sets owned by a debtor at the time of filing a petition for bankruptcy become part of the bankruptcy estate and subsequently are distributed to creditors. Generally, debtor transactions prior to the filing escape the purview of Chapter 7. If, however, a debtor distributes assets during the applicable statutory period, giving preference to some creditors' or defrauding other creditors,' the Code empowers the bankruptcy trustee to avoid those transfers.After filing, a debtor may redeem certain types of property placed under a creditor's lien by paying the creditor's claim. Selected provisions within Chapter 7 describe these basic elements of liquidation that require a valuation of debtor assets. Each provision mentioned may require a valuation under presently vague statutory language, sparse legislative history, and conflicting judicial interpretations.
This Note explores, on an individual basis, certain Bankruptcy Code sections requiring valuation in a bankruptcy liquidation situation. Part II of this Note examines section 522, which exempts certain debtor assets from bankruptcy, but only to a limited value amount. Although section 522 states that "value" means "fair market value," some courts, because of the liquidation context of section 522, have used the lower "liquidation value" as the applicable standard. Part III discusses section 547, which allows the trustee to avoid preferential transfers to creditors, provided that the debtor was insolvent and the transfer enabled the creditor to receive a greater amount than would have been received proceeding only on the creditor's secured claim. The valuation of assets to determine solvency has enjoyed numerous, but inconsistent, judicial interpretations; valuation to determine the amount of a secured claim is a more recently evolving issue. Part IV explores section 548, which permits a trustee to avoid certain transfers by a debtor, including involuntary foreclosure sales of the debtor's property, if the debtor does not receive a "reasonably equivalent value" as consideration for the property. Courts are divided sharply over whether "reasonable equivalence" is measured by fair market value or by foreclosure market value. Part V discusses section 722, which allows a debtor to redeem certain property placed under a creditor's lien for the amount of lien, generally measured by the value of the property."° Courts have valued encumbered property anywhere from a full fair market value to a lower whole-sale or liquidation value. Part VI summarizes the different valuation methods used for each Code section discussed and suggests an appropriate standard that Congress should adopt for each section.
For each Code section discussed, this Note first describes how the mechanics of each section align debtors and creditors in advocating certain methods of valuation. Next, this Note examines judicial responses to each section, emphasizing conflicting theoretical approaches and policies. Finally, this Note suggests valuation standards that will enhance predictability and uniformity within each of the Code sections discussed.
Steven l. Pottle,
Bankruptcy Valuation Under Selected Liquidation Provisions,
40 Vanderbilt Law Review
Available at: https://scholarship.law.vanderbilt.edu/vlr/vol40/iss1/4