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Section 506 Determination of secured status (Judge Gargotta)

In re Morales (October 21, 2014)

Issue(s): 1) Whether a creditor limits the value of its claim by making a notation on the claim that the value of the property securing the creditor’s debt is less than the full amount of its debt. 2) Do the terms of the original tax lien still govern when a party is subrogated to another lender that is not a taxing authority?

Holding(s): Neither the Bankruptcy Code nor the Bankruptcy Rules give any evidentiary effect to a secured creditor’s asserted value of the collateral. The extent of the secured status of the claim is determined under § 506(a) and may require more than the mere filing of a secured proof of claim. “Contractual subrogation arises when ‘a person advances money to take up and extend indebtedness secured by a vendor's lien on land under an agreement that such person shall stand in the place of the original holder of the indebtedness.’” Vogel v. Veneman, 276 F.3d 729, 734 (5th Cir. 2002) (citations omitted). Therefore, “when a party is contractually subrogated to another lender, the terms of the original contract govern.” Id.

In re Seda France (July 22, 2011)
Issue: Whether an unsecured creditor is entitled to attorneys’ fees under a confirmed Chapter 11 plan that pays creditors in full?
Holding: The Court finds that unsecured creditors have no clear entitlement to post-petition attorneys’ fees under the Bankruptcy Code. Allowing certain types of unsecured creditors, such as sophisticated commercial claimants, to recover post-petition attorneys’ fees while other unsecured creditors are not able to recover such fees violates a central purpose of the bankruptcy system to secure equality among the creditors of a bankrupt party. Moreover, allowing unsecured creditors to recover post-petition attorneys’ fees negatively impacts and inconveniences the administration of bankruptcy cases. Aegis’ claim for attorneys’ fees is DENIED.