To avoid “gamesmanship,” Bankruptcy Judge Brendan L. Shannon of Wilmington, Del., settled on the filing date as the date for valuing real property in a dispute over stripping off an entirely underwater subordinate mortgage in chapter 13.
In Delaware, the case was an issue of first impression. Around the country, Judge Shannon said, courts adopt a variety of dates depending upon the purpose of valuation. A majority, he said, use sometime around confirmation when cramming down a plan on a secured creditor under Section 1325(a)(5)(B). Exemptions are generally determined at the filing date, while the date can range anywhere from the filing date to confirmation for adequate protection in the context of relief-from-stay motions.
For guidance, Judge Shannon looked to the Third Circuit’s McDonald opinion, which authorized strip-off in chapter 13. Although the appeals court did not prescribe a date for valuation, the circuit said the rule to be adopted “should minimize the opportunity for gamesmanship,” according to Judge Shannon.
For “uniformity and predictability,” Judge Shannon latched onto the filing date to avoid gamesmanship and reduce “the incentive to delay litigation or appeals.” He rejected the confirmation date to avoid delays designed to affect the result.
Selecting the earlier petition date was a victory for the debtor. Because the filing occurred in 2011, the debtor avoided the intervening appreciation, which may have obviated the ability to strip off. In a down market, the filing date will be a disadvantage for a debtor aiming to strip off.