The Third Circuit released a precedential opinion on May 14, 2012 that can greatly impact bankruptcy debtors attempting to reorganize as well as their secured creditors.  A copy of the opinion is available here (the “Opinion”).  Because Fox Rothschild was directly involved in this case and argued before the Third Circuit, I will only be providing a brief summary of the Opinion.

Central to the Opinion is the Third Circuit’s interpretation of 11 U.S.C. § 506(a), a portion of which is quoted in the Opinion as follows:

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 . . . .

Opinion at *13-14.  The Third Circuit then confirmed the value given to the collateral by the Bankruptcy Court, which resulted in the second lien holder having its secured claim valued at 0 and the entire value of its claim treated as unsecured. For all of the specifics and details (which are quite important in this Opinion) please follow the link above or contact Michael Viscount, Joshua Klein or Samuel Israel.