Section 506(A): Why "Wait-And-See" Won’t Work To Value Secured-Creditor Claims

Section 506(a) of the Bankruptcy Code contemplates bifurcation of a debtor's obligation to a secured creditor into secured and unsecured claims, depending on the value of the collateral securing the debt. The term "value," however, is not defined in the Bankruptcy Code, and bankruptcy courts vary in their approaches to the meaning of the term. In In re Heritage Highgate, Inc., 679 F.3d 132 (3d Cir. 2012), the Court of Appeals for the Third Circuit ruled that, in a chapter 11 reorganization, the term "value," as applied to section 506(a), should mean the fair market value of collateral as of plan confirmation. In so ruling, the court of appeals rejected the market-based, or "wait-and-see," approach recommended by a group of secured creditors, whose subordinated claims would be rendered unsecured unless the court included projected revenues from the debtor's chapter 11 plan in the valuation analysis. Applying the fair-market-value approach to calculate the amount of