Last week, the 3rd circuit weighed in on the proper valuation method to be used in the context of a preferential transfer under Section 547 of the bankruptcy code. The proper valuation method question has caused a split among the circuits. The 11th circuit has allowed bankruptcy courts to choose among several valuation methods. Meanwhile, the 9th circuit requires a bankruptcy court to use the property’s liquidation value.
The issue before the court involved a second mortgage held by a bank who ended up purchasing the property at a sheriff’s sale. The sale netted the bank an $80,000 surplus above what the house was “valued” at. The 3rd circuit sided with the 9th and required that the liquidation value be used to value the property in question. In doing so, the court ruled that the transfer may not be avoided under Section 547. Theoretically, if this case were brought in the 11th circuit, the court could use another valuation method and the transfer may be avoidable under Section 547. The Supreme Court opted not to hear the case to resolve the split amongst the circuits.
Download the Court Opinion
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