The Rule 3001(f) Presumption of Claim Validity Doesn’t Include the Value of Collateral

Does the presumption of “the validity and amount of the claim” in Bankruptcy Rule 3001(f) include the value ascribed to the collateral in the creditor’s proof of secured claim, when the debtor challenges the valuation of the collateral in a proceeding to bifurcate the claim under Section 506(a)?

The presumption of validity does not extend to the value of the collateral, according to Bankruptcy Judge Christopher D. Jaime of Sacramento, Calif., who differed from the conclusion reached by the Third Circuit in In re Heritage Highgate Inc., 679 F.3d 132 (3d Cir. 2012).

The court are split, with the Third Circuit having held in Heritage Highgate that the evidentiary presumption of the value of the collateral, as stated in a secured proof of claim, carries over when the collateral is being valued under Section 506(a) and Bankruptcy Rule 3012.

In his unpublished opinion on February 26, Judge Jaime said that Heritage Highgate and similar lower court decisions “conflate” and “do not recognize the distinction between the claims allowance process under Section 502(a) and Bankruptcy Rule 3001(f) and the claims bifurcation process under Section 506(a) and Bankruptcy Rule 3012.” [Emphasis in original.]

Judge Jaime explained that the allowance process “establishes the existence of the debt,” while valuation and bifurcation determine “how the established debt is to be paid and treated under the Bankruptcy Code.”

The “better and better-reasoned approach,” Judge Jaime said, is to treat the processes as “separate and distinct.” He therefore held “that the evidentiary presumption of Bankruptcy Rule 3001(f) does not apply to motions to value collateral brought under Section 506(a) and Bankruptcy Rule 3012.”

Judge Jaime said his approach enables the court to weigh the debtor’s testimony about the condition and value of the collateral, compared to the valuation by the lender, who won’t know the condition of the property. Having no presumption from the proof of claim, he said, will prevent a lender from attempting “to extract more from a debtor” by placing an unrealistically high value on the collateral.

Even without a presumption of value flowing from the proof of claim, “not every unopposed motion to value will be granted,” Judge Jaime said, because the debtor “still has the initial burden of producing some admissible evidence of value.” In most cases, he said, the debtor’s burden “may be satisfied by a declaration that states the debtor’s opinion of value.”

However, Judge Jaime said the court is not required to accept the debtor’s valuation, “even when no other evidence of value is present.” For example, he said, the court may deny an unopposed motion if the debtor’s “declaration is not credible or if the declaration suffers from an evidentiary defect.”