OCTOBER TERM, 1991
Syllabus
DEWSNUP
v. TIMM ET AL.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE TENTH
CIRCUIT
No. 90-741. Argued October 15, 1991-Decided January 15, 1992
Petitioner Dewsnup, the debtor in a case under Chapter 7 of the
Bankruptcy Code, filed an adversary proceeding, contending that the
debt of approximately $120,000 that she owed to respondents
exceeded the fair market value of the land securing the debt and
that, therefore, the Bankruptcy Court should reduce respondents'
lien on the land to the land's fair market value pursuant to 11 U.
S. C. § 506(d), which provides that a lien is void "[t]o the extent
that [it] secures a claim against the debtor that is not an allowed
secured claim." Dewsnup reasoned that respondents would have such
an "allowed secured claim" only to the extent of the judicially
determined value of their collateral, since, under § 506(a), "[a]n
allowed claim of a creditor secured by a lien on property in which
the estate has an interest ... is a secured claim to the extent of
the value of such creditor's interest in the estate's interest in
such property." The court determined that the then value of the
land in question was $39,000, but refused to grant the requested
relief and entered a judgment of dismissal with prejudice. The
District Court and the Court of Appeals affirmed.
Held: Section 506(d) does not allow Dewsnup to "strip
down" respondents' lien to the judicially determined value of the
collateral, because respondents' claim is secured by a lien and has
been fully allowed pursuant to § 502 and, therefore, cannot be
classified as "not an allowed secured claim" for purposes of the
lien-voiding provision of § 506(d). Pp.414-420.
(a) The contrasting positions of the parties and their
amici demonstrate that § 506(d) and its relationship to
other Code provisions are ambiguous. Pp.414-416.
(b) Although not without its difficulty, the position espoused
by respondents and the United States as
amicus curiae-that
the words "allowed secured claim" in § 506(d) need not be read as
an indivisible term of art defined by reference to § 506(a), but
should be read term-by-term to refer to any claim that is, first,
allowed, and, second, secured-generally is the better of the
several approaches argued in this case. Were this Court writing on
a clean slate, it might be inclined to agree with Dewsnup that the
quoted words must take the same meaning in § 506(d) as in § 506(a).
However, the practical effect of Dewsnup's argument is to freeze
the creditor's secured interest at the judicially determined
411
valuation in contravention of the pre-Code rule that liens on
real property pass through bankruptcy unaffected. Congress must
have enacted the Code with a full understanding of the latter rule,
and, given the statutory ambiguity here, to attribute to Congress
the intention to grant a debtor the broad new remedy against
allowed claims to the extent that they become "unsecured" for
purposes of § 506(a) without mentioning the new remedy somewhere in
the Code or in the legislative history is implausible and contrary
to basic bankruptcy principles. Pp. 416-420.
908 F.2d
588, affirmed.
BLACKMUN, J., delivered the opinion of the Court, in which
REHNQUIST, C. J., and WHITE, STEVENS, O'CONNOR, and KENNEDY, JJ.,
joined. SCALIA, J., filed a dissenting opinion, in which SOUTER,
J., joined,
post, p. 420. THOMAS, J., took no part in the
consideration or decision of the case.
Timothy B. Dyk argued the cause for petitioner. With him
on the briefs was
Patricia A. Dunn.
Richard G.
Taranto argued the cause for
respondents.
With him on the brief were H. Bartow Farr
III and Michael
Z. Hayes.
Ronald J. Mann argued the cause for the United States as amicus
curiae urging affirmance. With him on the brief were Solicitor
General Starr, Assistant Attorney General Gerson, Deputy Solicitor
General Roberts, and Alan Charles Raul. *
JUSTICE BLACKMUN delivered the opinion of the Court. We are
confronted in this case with an issue concerning § 506(d) of the
Bankruptcy Code, 11 U. S. C. § 506(d).1 May
*
Michael Fox Mivasair and
Henry J.
Sommer
filed a brief for the Consumers Education and Protective
Association, Inc., as
amicus curiae urging reversal.
1 Section 506 provides in full:
"(a) An allowed claim of a creditor secured by a lien on
property in which the estate has an interest, or that is subject to
setoff under section 553 of this title, is a secured claim to the
extent of the value of such creditor's interest in the estate's
interest in such property, or to the extent of the amount subject
to setoff, as the case may be, and is an unsecured claim to the
extent that the value of such creditor's interest or the amount
412
a debtor "strip down" a creditor's lien on real property to the
value of the collateral, as judicially determined, when that value
is less than the amount of the claim secured by the lien?
I
On June 1, 1978, respondents loaned $119,000 to petitioner
Aletha Dewsnup and her husband, T. LaMar Dewsnup, since deceased.
The loan was accompanied by a Deed of Trust granting a lien on two
parcels of Utah farmland owned by the Dewsnups.
Petitioner defaulted the following year. Under the terms of the
Deed of Trust, respondents at that point could have proceeded
against the real property collateral by accelerating the maturity
of the loan, issuing a notice of default, and selling the land at a
public foreclosure sale to satisfy the debt. See also Utah Code
Ann. §§ 57-1-20 to 57-1-37 (1990 and Supp. 1991).
so subject to setoff is less than the amount of such allowed
claim. Such value shall be determined in light of the purpose of
the valuation and of the proposed disposition or use of such
property, and in conjunction with any hearing on such disposition
or use or on a plan affecting such creditor's interest.
"(b) To the extent that an allowed secured claim is secured by
property the value of which, after any recovery under subsection
(c) of this section, is greater than the amount of such claim,
there shall be allowed to the holder of such claim, interest on
such claim, and any reasonable fees, costs, or charges provided for
under the agreement under which such claim arose.
"(c) The trustee may recover from property securing an allowed
secured claim the reasonable, necessary costs and expenses of
preserving, or disposing of, such property to the extent of any
benefit to the holder of such claim.
"(d) To the extent that a lien secures a claim against the
debtor that is not an allowed secured claim, such lien is void,
unless-
"(1) such claim was disallowed only under section 502(b)(5) or
502(e) of this title; or
"(2) such claim is not an allowed secured claim due only to the
failure of any entity to file a proof of such claim under section
501 of this title."
413
Respondents did issue a notice of default in 1981. Before the
foreclosure sale took place, however, petitioner sought
reorganization under Chapter 11 of the Bankruptcy Code, 11 U. S. C.
§ 1101
et seq. That bankruptcy petition was dismissed, as
was a subsequent Chapter 11 petition. In June 1984, petitioner
filed a petition seeking liquidation under Chapter 7 of the Code,
11 U. S. C. § 701
et seq. Because of the pendency of these
bankruptcy proceedings, respondents were not able to proceed to the
foreclosure sale. See 11 U. S. C. § 362 (1988 ed. and Supp.
II).
In 1987, petitioner filed the present adversary proceeding in
the Bankruptcy Court for the District of Utah seeking, pursuant to
§ 506, to "avoid" a portion of respondents' lien. App. 3.
Petitioner represented that the debt of approximately $120,000 then
owed to respondents exceeded the fair market value of the land and
that, therefore, the Bankruptcy Court should reduce the lien to
that value. According to petitioner, this was compelled by the
interrelationship of the security-reducing provision of § 506(a)
and the lien-voiding provision of § 506(d). Under § 506(a) ("An
allowed claim of a creditor secured by a lien on property in which
the estate has an interest ... is a secured claim to the extent of
the value of such creditor's interest in the estate's interest in
such property"), respondents would have an "allowed secured claim"
only to the extent of the judicially determined value of their
collateral. And under § 506(d) ("To the extent that a lien secures
a claim against the debtor that is not an allowed secured claim,
such lien is void"), the court would be required to void the lien
as to the remaining portion of respondents' claim, because the
remaining portion was not an "allowed secured claim" within the
meaning of § 506(a).
The Bankruptcy Court refused to grant this relief.
In re
Dewsnup, 87 B. R. 676 (1988). After a trial, it determined that the
then value of the land subject to the Deed of Trust was $39,000. It
indulged in the assumption that the property had been abandoned by
the trustee pursuant to § 554,
414
and reasoned that once property was abandoned it no longer fell
within the reach of § 506(a), which applies only to "property in
which the estate has an interest," and therefore was not covered by
§ 506(d).
The United States District Court, without a supporting opinion,
summarily affirmed the Bankruptcy Court's judgment of dismissal
with prejudice. App. to Pet. for Cert. 12a.
The Court of Appeals for the Tenth Circuit, in its turn, also
affirmed.
In re Dewsnup, 908 F.2d
588 (1990). Starting from the "fundamental premise" of § 506(a)
that a claim is subject to reduction in security only when the
estate has an interest in the property, the court reasoned that
because the estate had no interest in abandoned property, § 506(a)
did not apply (nor, by implication, did § 506(d)).
Id., at
590-591. The court then noted that a contrary result would be
inconsistent with § 722 under which a debtor has a limited right to
redeem certain personal property.
Id., at 592.
Because the result reached by the Court of Appeals was at odds
with that reached by the Third Circuit in
Gaglia v.
First
Federal Savings &
Loan Assn., 889
F.2d 1304, 13061311 (1989), and was expressly recognized by the
Tenth Circuit as being in conflict, see 908 F. 2d, at 591, we
granted certiorari. 498 U. S. 1081 (1991).
II
As we read their several submissions, the parties and their
amici are not in agreement in their respective approaches to
the problem of statutory interpretation that confronts us.
Petitioner-debtor takes the position that §§ 506(a) and 506(d) are
complementary and to be read together. Because, under § 506(a), a
claim is secured only to the extent of the judicially determined
value of the real property on which the lien is fixed, a debtor can
void a lien on the property pursuant to § 506(d) to the extent the
claim is no longer secured and thus is not "an allowed secured
claim." In other words, § 506(a) bifurcates classes of claims
allowed under § 502 into secured
415
claims and unsecured claims; any portion of an allowed claim
deemed to be unsecured under § 506(a) is not an "allowed secured
claim" within the lien-voiding scope of § 506(d). Petitioner argues
that there is no exception for unsecured property abandoned by the
trustee.
Petitioner's
amicus argues that the plain language of §
506(d) dictates that the proper portion of an undersecured lien on
property in a Chapter 7 case is void whether or not the property is
abandoned by the trustee. It further argues that the rationale of
the Court of Appeals would lead to evisceration of the debtor's
right of redemption and the elimination of an undersecured
creditor's ability to participate in the distribution of the
estate's assets.
Respondents primarily assert that § 506(d) is not, as petitioner
would have it, "rigidly tied" to § 506(a), Brief for Respondents 7.
They argue that § 506(a) performs the function of classifying
claims by true secured status at the time of distribution of the
estate to ensure fairness to unsecured claimants. In contrast, the
lien-voiding § 506(d) is directed to the time at which foreclosure
is to take place, and, where the trustee has abandoned the
property, no bankruptcy distributional purpose is served by voiding
the lien.
In the alternative, respondents, joined by the United States as
amicus curiae, argue more broadly that the words "allowed
secured claim" in § 506(d) need not be read as an indivisible term
of art defined by reference to § 506(a), which by its terms is not
a definitional provision. Rather, the words should be read
term-by-term to refer to any claim that is, first, allowed, and,
second, secured. Because there is no question that the claim at
issue here has been "allowed" pursuant to § 502 of the Code and is
secured by a lien with recourse to the underlying collateral, it
does not come within the scope of § 506(d), which voids only liens
corresponding to claims that have not been allowed and secured.
This reading of § 506(d), according to respondents and the United
States, gives the provision the simple and sensible function
416
of voiding a lien whenever a claim secured by the lien itself
has not been allowed. It ensures that the Code's determination not
to allow the underlying claim against the debtor personally is
given full effect by preventing its assertion against the debtor's
property.2
Respondents point out that pre-Code bankruptcy law preserved
liens like respondents' and that there is nothing in the Code's
legislative history that reflects any intent to alter that law.
Moreover, according to respondents, the "fresh start" policy cannot
justify an impairment of respondents' property rights, for the
fresh start does not extend to an
in rem claim against
property but is limited to a discharge of personal liability.
III
The foregoing recital of the contrasting positions of the
respective parties and their
amici demonstrates that § 506
of the Bankruptcy Code and its relationship to other provisions of
that Code do embrace some ambiguities. See 3 Collier on Bankruptcy,
ch. 506 and, in particular, , 506.07 (15th ed. 1991). Hypothetical
applications that come to mind and those advanced at oral argument
illustrate the difficulty of interpreting the statute in a single
opinion that would apply to all possible fact situations. We
therefore focus upon the
2 Respondents expressly stated in their brief and twice again at
oral argument that they adopted as an alternative position the
United States' interpretation of § 506(d). Brief for Respondents
40, n. 33; Tr. of Oral Arg. 14, 20. In dissent, however, JUSTICE
SCALIA contends that respondents have not taken the same position
as the United States on this issue. According to the dissent, the
United States has taken the position that "a lien only 'secures'
the claim in question up to the value of the security that is the
object of the lien-and only up to
that value is the lien
subject to avoidance under § 506(d)."
Post, at 424. In fact,
the United States says:
"Under [petitioner's] reading, Section 506(d) would operate to
reduce the creditor's lien to the value of the allowed secured
claim described in Section 506(a). In our view, this reading makes
no sense." Brief for United States as
Amicus Curiae 5.
417
case before us and allow other facts to await their legal
resolution on another day.
We conclude that respondents' alternative position, espoused
also by the United States, although not without its difficulty,
generally is the better of the several approaches. Therefore, we
hold that § 506(d) does not allow petitioner to "strip down"
respondents' lien, because respondents' claim is secured by a lien
and has been fully allowed pursuant to § 502. Were we writing on a
clean slate, we might be inclined to agree with petitioner that the
words "allowed secured claim" must take the same meaning in §
506(d) as in § 506(a).3 But, given the ambiguity in the text, we
are not convinced that Congress intended to depart from the preCode
rule that liens pass through bankruptcy unaffected.
1. The practical effect of petitioner's argument is to freeze
the creditor's secured interest at the judicially determined
valuation. By this approach, the creditor would lose the benefit of
any increase in the value of the property by the time of the
foreclosure sale. The increase would accrue to the benefit of the
debtor, a result some of the parties describe as a "windfall."
We think, however, that the creditor's lien stays with the real
property until the foreclosure. That is what was bargained for by
the mortgagor and the mortgagee. The voidness language sensibly
applies only to the security aspect of the lien and then only to
the real deficiency in the security. Any increase over the
judicially determined valuation during bankruptcy rightly accrues
to the benefit of the creditor, not to the benefit of the debtor
and not to the benefit of other unsecured creditors whose claims
have been allowed and who had nothing to do with the
mortgagor-mortgagee bargain.
Such surely would be the result had the lienholder stayed aloof
from the bankruptcy proceeding (subject, of course, to
3 Accordingly, we express no opinion as to whether the words
"allowed secured claim" have different meaning in other provisions
of the Bankruptcy Code.
418
the power of other persons or entities to pull him into the
proceeding pursuant to § 501), and we see no reason why his
acquiescence in that proceeding should cause him to experience a
forfeiture of the kind the debtor proposes. It is true that his
participation in the bankruptcy results in his having the benefit
of an allowed unsecured claim as well as his allowed secured claim,
but that does not strike us as proper recompense for what
petitioner proposes by way of the elimination of the remainder of
the lien.
2. This result appears to have been clearly established before
the passage of the 1978 Act. Under the Bankruptcy Act of 1898, a
lien on real property passed through bankruptcy unaffected. This
Court recently acknowledged that this was so. See
Farrey v.
Sanderfoot, 500 U. S. 291, 297 (1991)
("Ordinarily, liens and other secured interests survive
bankruptcy");
Johnson v.
Home State Bank, 501 U. S. 78, 84 (1991)
("Rather, a bankruptcy discharge extinguishes only one mode of
enforcing a claim-namely, an action against the debtor
in
personam-while leaving intact another-namely, an action against
the debtor
in rem").4
3. Apart from reorganization proceedings, see 11 U. S. C. §§
616(1) and (10) (1976 ed.), no provision of the pre-Code
4 Section 67d of the 1898 Act, 30 Stat. 564, made this
explicit:
"Liens given or accepted in good faith and not in contemplation
of or in fraud upon this Act, and for a present consideration,
which have been recorded according to law, if record thereof was
necessary in order to impart notice, shall not be affected by this
Act."
The Court, with respect to this statute, has said: "Section 67d
... declares that liens given or accepted in good faith and not in
contemplation of or in fraud upon this act, shall not be affected
by it."
City of Richmond v.
Bird, 249 U. S. 174, 177
(1919).
This precise statutory language did not appear in a
reorganization of the section in the Chandler Act of 1938, 52 Stat.
840. A respected bankruptcy authority convincingly explained that
this was done not to remove the rule of validity but because "the
draftsmen of the 1938 Act desired generally to specify only what
should be
invalid." 4B Collier on Bankruptcy' 70.70, p. 771
(14th ed. 1978) (emphasis in original). The alteration had no
substantive effect.
Oppenheimer v.
Oldham, 178 F.2d
386, 389
(CA5 1949).
419
statute permitted involuntary reduction of the amount of a
creditor's lien for any reason other than payment on the debt. Our
cases reveal the Court's concern about this. In
Long v.
Bullard, 117
U. S. 617, 620-621 (1886), the Court held that a discharge in
bankruptcy does not release real estate of the debtor from the lien
of a mortgage created by him before the bankruptcy. And in
Louisville Joint Stock Land Bank v.
Radford, 295 U. S. 555 (1935), the
Court considered additions to the Bankruptcy Act effected by the
Frazier-Lemke Act, 48 Stat. 1289. There the Court noted that the
latter Act's "avowed object is to take from the mortgagee rights in
the specific property held as security; and to that end 'to scale
down the indebtedness' to the present value of the property." 295
U. S., at 594. The Court invalidated that statute under the Takings
Clause. It further observed: "No instance has been found, except
under the Frazier-Lemke Act, of either a statute or decision
compelling the mortgagee to relinquish the property to the
mortgagor free of the lien unless the debt was paid in full."
Id., at 579.
Congress must have enacted the Code with a full understanding of
this practice. See H. R. Rep. No. 95-595, p. 357 (1977)
("Subsection (d) permits liens to pass through the bankruptcy case
unaffected").
4. When Congress amends the bankruptcy laws, it does not write
"on a clean slate." See
Emil v.
Hanley, 318 U. S. 515, 521
(1943). Furthermore, this Court has been reluctant to accept
arguments that would interpret the Code, however vague the
particular language under consideration might be, to effect a major
change in pre-Code practice that is not the subject of at least
some discussion in the legislative history. See
United Savings
Assn. of Texas v.
Timbers of Inwood Forest Associates,
Ltd., 484 U. S.
365, 380 (1988). See also
Pennsylvania Dept. of Public
Welfare v.
Davenport, 495 U. S. 552, 563
(1990);
United States v.
Ron Pair Enterprises, Inc.,
489 U. S. 235,
244-245 (1989). Of course, where the language is unambiguous,
silence in the legislative history can-
420
not be controlling. But, given the ambiguity here, to attribute
to Congress the intention to grant a debtor the broad new remedy
against allowed claims to the extent that they become "unsecured"
for purposes of § 506(a) without the new remedy's being mentioned
somewhere in the Code itself or in the annals of Congress is not
plausible, in our view, and is contrary to basic bankruptcy
principles.
The judgment of the Court of Appeals is affirmed.
It is so ordered.
JUSTICE THOMAS took no part in the consideration or decision of
this case.
JUSTICE SCALIA, with whom JUSTICE SOUTER joins, dissenting.
With exceptions not pertinent here, § 506(d) of the Bankruptcy
Code provides: "To the extent that a lien secures a claim against
the debtor that is not an allowed secured claim, such lien is void
.... " Read naturally and in accordance with other provisions of
the statute, this automatically voids a lien to the extent the
claim it secures is not both an "allowed claim" and a "secured
claim" under the Code. In holding otherwise, the Court replaces
what Congress said with what it thinks Congress ought to have
said-and in the process disregards, and hence impairs for future
use, wellestablished principles of statutory construction. I
respectfully dissent.
I
This case turns solely on the meaning of a single phrase found
throughout the Bankruptcy Code: "allowed secured claim." Section
506(d) unambiguously provides that to the extent a lien does not
secure such a claim it is (with certain exceptions) rendered void.
See 11 U. S. C. § 506(d). Congress did not leave the meaning of
"allowed secured claim" to speculation. Section 506(a) says that an
"allowed claim"
421
(the meaning of which is obvious) is also a "secured claim" "to
the extent of
the value of [the] creditor's interest in the
estate's interest in [the securing] property." (Emphasis
added.) (This means, generally speaking, that an allowed claim "is
secured only to the extent of the value of the property on which
the lien is fixed; the remainder of that claim is considered
unsecured."
United States v.
Ron Pair Enterprises,
Inc., 489 U. S.
235, 239 (1989).) When § 506(d) refers to an "allowed secured
claim," it can only be referring to that allowed "secured claim" so
carefully described two brief subsections earlier.
The phrase obviously bears the meaning set forth in § 506(a)
when it is used in the subsections of § 506 other than § 506(d)-for
example, in § 506(b), which addresses "allowed secured claim[sJ"
that are oversecured. Indeed, as respondents apparently concede,
see Brief for Respondents 40; Tr. of Oral Arg. 29-30, even when the
phrase appears outside of § 506, it invariably means what § 506(a)
describes: the portion of a creditor's allowed claim that is
secured after the calculations required by that provision have been
performed. See,
e. g., 11 U. S. C. § 722 (permitting a
Chapter 7 debtor to redeem certain tangible personal property from
certain liens "by paying the holder of such lien the amount of the
allowed secured claim of such holder that is secured by such
lien"); § 1225(a)(5) (prescribing treatment of
"allowed
secured claim[sJ" in family farmer's reorganization plan); §
1325(a)(5) (same with respect to
"allowed secured claim[sJ"
in individual reorganizations). (Emphases added.) The statute is
similarly consistent in its use of the companion phrase
"allowed
unsecured claim" to describe (with respect to a claim supported
by a lien) that portion of the claim that is treated as "unsecured"
under § 506(a). See,
e. g., 11 U. S. C. § 507(a)(7) (fixing
priority of
"allowed unsecured claims of governmental
units"); § 726(a)(2) (providing for payment of
"allowed
unsecured claim[sJ" in Chapter 7 liquidation); § 1225(a)(4)
(setting standard for treatment
422
of
"allowed unsecured claim[sJ" in Chapter 12 plan); §
1325(a)(4) (setting standard for treatment of
"allowed unsecured
claim[sJ" in Chapter 13 plan). (Emphases added.) When, on the
other hand, the Bankruptcy Code means to refer to a secured party's
entire allowed claim, i.
e., to both the "secured" and
"unsecured" portions under § 506(a), it uses the term
"allowed
claim"-as in 11 U. s. C. § 363(k), which refers to "a lien that
secures an allowed claim." Given this clear and unmistakable
pattern of usage, it seems to me impossible to hold, as the Court
does, that "the words 'allowed secured claim' in § 506(d) need not
be read as an indivisible term of art defined by reference to §
506(a)."
Ante, at 415; see
ante, at 416-417. We have
often invoked the "'normal rule of statutory construction that
"'identical words used in different parts of the same act are
intended to have the same meaning.''''''
Sullivan v.
Stroop, 496 U.
S. 478, 484 (1990) (quoting
Sorenson v.
Secretary of
Treasury, 475 U.
S. 851, 860 (1986) (quoting
Helvering v.
Stockholms
Enskilda Bank, 293
U. S. 84, 87 (1934) (quoting
Atlantic Cleaners &
Dyers, Inc. v.
United States, 286 U. S. 427, 433
(1932)))). That rule must surely apply,
a fortiori, to use
of identical words
in the same section of the same
enactment.
The Court makes no attempt to establish a textual or structural
basis for overriding the plain meaning of § 506(d), but rests its
decision upon policy intuitions of a legislative character,l and
upon the principle that a text which is "am-
1 For example: "That is what was bargained for by the mortgagor
and the mortgagee .... Any increase over the judicially determined
valuation during bankruptcy rightly accrues to the benefit of the
creditor .... [W]e see no reason why [the lienholder's]
acquiescence in [the bankruptcy] proceeding should cause him to
experience a forfeiture of the kind the debtor proposes .... [T]he
benefit of an allowed unsecured claim ... does not strike us as
proper recompense for what petitioner proposes by way of the
elimination of the remainder of the lien."
Ante, at
417-418.
Apart from the fact that these policy judgments are
inappropriate, it is not at all clear that evisceration of § 506(d)
is even necessary to effectuate them. The feared "windfall" to the
debtor may be prevented by 11
423
biguous" (a status apparently achieved by being the subject of
disagreement between self-interested litigants) cannot change
pre-Code law without the imprimatur of "legislative history." Thus
abandoning the normal and sensible principle that a term (and
especially an artfully defined term such as "allowed secured
claim") bears the same meaning throughout the statute, the Court
adopts instead what might be called the one-subsection-at-a-time
approach to statutory exegesis. "[WJe express no opinion," the
Court amazingly says, "as to whether the words 'allowed secured
claim' have different meaning in other provisions of the Bankruptcy
Code."
Ante, at 417, n. 3. "We ... focus upon the case
before us and allow other facts to await their legal resolution on
another day."
Ante, at 416-417.
II
As to the meaning of this single subsection (considered, of
course, in a vacuum), the Court claims to be embracing
"respondents' alternative position,"
ante, at 417, which is
that "the words 'allowed secured claim' in § 506(d) need not be
read as an indivisible term of art defined by reference to §
506(a),"
ante, at 415; and that "secured claim" (for
purposes
u. S. C. § 551, which preserves liens avoided under § 506(d) and
other provisions of the Code "for the benefit of the estate," i.
e., for the benefit of the general unsecured creditors. See
Note, An Individual Debtor's Right to Avoid Liens Under Section
506(d) of the Bankruptcy Code, 12 Cardozo L. Rev. 263, 280-281
(1990). See also
In re Ward, 42 B. R. 946, 952-953 (Bkrtcy.
Ct. MD Tenn. 1984). And the creditor whose lien has been stripped
may even prevail over the other unsecured creditors by reason of 11
U. S. C. § 363(k), which permits such an undersecured creditor to
apply the entire amount of his allowed claim (secured and
unsecured) against the purchase price of the collateral at the
trustee's foreclosure sale. This appears to enable the
lien-stripped creditor (at least in the context of a
trustee-managed foreclosure sale) to use his "unsecured claim" to
capture any postevaluation appreciation in the collateral. See
Carlson, Undersecured Claims Under Bankruptcy Code Sections 506(a)
and 1111(b):
Second Looks at Judicial Valuations of Collateral, 6 Bankr. Dev.
J. 253, 272-279 (1989). I would leave these questions for
resolution on remand.
424
of § 506(d) alone) simply connotes an allowed claim that is
"secured" in the ordinary sense, i.
e., that is backed up by
a security interest in property, whether or not the value of the
property suffices to cover the claim. The Court attributes this
position to the United States as well,
ante, at 415-416, and
n. 2, but the Government's position is in fact differentand
significantly so, since it
does (as proper statutory
interpretation ought to do) give the phrase "allowed secured claim"
a uniform meaning. I must describe the Government's theory and
explain why it does not work.
The distinctive feature of the United States' approach is that
it seeks to avoid invalidation of the so-called "underwater"
portion of the lien by focusing
not upon the phrase "allowed
secured claim" in § 506(d), but upon the prior phrase "secures a
claim." ("To the extent that a lien
secures a claim against
the debtor that is not an allowed secured claim, such lien is
void." (Emphasis added.)) Under the Government's textual theory,
this phrase can be read to refer not merely to the
object of
the security, but to its
adequacy. That is to say, a lien
only "secures" the claim in question up to the value of the
security that is the object of the lienand only up to
that
value is the lien subject to avoidance under § 506(d).2 This
interpretation succeeds in giving the
2 The Court's insistence that the positions put forward by
respondents and the United States are one and the same, see
ante, at 417, n. 3, is simply mistaken. The following
excerpts from the Government's brief, among others, are compatible
only with the theory (which is not respondents') that the phrase
"lien secures a claim" in § 506(d) means "lien is adequate security
for a claim";
"On its face, [§ 506(d)] appears to take one set of
circumstances-where 'a lien secures a claim' -and carve out of it a
lesser and included set of circumstances-where that secured claim
'is not an
allowed secured claim.' Liens in the carved-out
set are void ....
"According to petitioner, what the provision means is that a
lien securing an unsecured claim is void. But the provision is
triggered only '[t]o the extent that a lien secures a claim,' and
if a lien secures a claim the claim
425
phrase "allowed secured claim," which appears later in § 506(d),
a meaning compatible with that compelled by § 506(a). But that is
its only virtue.
To begin with, the interpretation renders some of the language
in § 506(d) surplusage. If the phrase "[t]o the extent that a lien
secures a claim" describes only that portion of a claim that
is secured by actual economic value, then the later phrase "is not
an allowed
secured claim" should instead have read simply
"is not allowed." For the phrase "allowed secured claim"
itself describes a claim that is
actually secured in
light of § 506(a)'s calculations. Another reading of § 506(d)'s
opening passage is available, one that does not assume such clumsy
draftsmanship-and that employs, to boot, a much more natural
reading of the phrase "lien secures a claim." The latter ordinarily
describes the relationship between a lien and a claim, not the
relationship between the value of the property subject to the lien
and the amount of the claim. One would say that a "mortgage secures
the claim" for the purchase price of a house, even if the value of
the house was inadequate to satisfy the full amount of the claim.
In other words, "[t]o the extent that a lien
secures a
claim" means in § 506(d) what it ordinarily means: "to the extent a
lien provides its holder with a right to retain property in full or
partial satisfaction of a claim." It means that
is not, at least in common parlance, unsecured .... [I]t is
inconsistent to say-as petitioner urges-that the prime situation at
which the provision is directed is one where, because the
collateral is worth less than the amount of the claim, the lien in
fact
fails to secure the claim. Under petitioner's reading,
a provision that applies '[t]o the extent that a lien secures a
claim' actually applies
only to the extent that the lien
does
not secure the claim." Brieffor United States as
Amicus Curiae 9 (emphasis in original) (footnote
omitted).
It is of little consequence, however, whether the Government
espoused this position or not. In either event, it is a
possible interpretation (more plausible, I think, than the
one the Court adopts) that merits consideration by those concerned
with text.
426
in § 506(d) just as it means that in § 506(a), see 11 U. S. C. §
506(a) ("An allowed claim of a creditor
secured by a lien
... is a secured claim to the extent ... ") (emphasis added), and
just as it means that elsewhere in the Bankruptcy Code, see,
e.
g., § 362(a)(5) ("to the extent that such lien
secures a
claim"); § 363(k) ("lien that
secures an allowed claim"). An
unnatural meaning should be disfavored at any time, but
particularly when it produces a redundancy. See
Montclair v.
Ramsdell, 107
U. S. 147, 152 (1883).
Of course
respondents' interpretation also creates a
redundancy in § 506(d). If a "secured claim" means only a claim for
which a lien has been given as security (whether or not the
security is adequate), then the prologue of § 506(d) can be
reformulated as follows: "To the extent that a lien secures a claim
against the debtor that is not an allowed claim secured by a lien,
such lien is void .... " Quite obviously, the phrase "secured by a
lien" in that reformulation is utterly redundant and absurd-as is
(on respondents' interpretation) the word "secured," which bears
the same meaning. In other words, both the United States'
interpretation and respondents' interpretation create a redundancy:
the former by making both parts of the § 506(d) prologue refer to
adequate security, and the latter by making both parts refer
to
security plain-and-simple. Only when one gives the words
in the first part of the prologue ("[t]o the extent that a lien
secures a claim") their natural meaning (as the Government does
not)
and gives the words in the second part of the prologue
("allowed secured claim") their previously established statutory
meaning (as the respondents do not) does the provision make a
point instead of a
redundancy.
Moreover, the practical consequences of the United States'
interpretation would be absurd. A secured creditor holding a lien
on property that is completely worthless would not face lien
avoidance under § 506(d),
even if the claim secured by that lien
were disallowed entirely. The same would be true of a lien on
property that has
some value but is obvi-
427
ously inadequate to cover all of the disallowed claim: the lien
would be voided only to the extent of the property's value at the
time of the bankruptcy court's evaluation, and could be asserted
against any increase in the value of the property that might later
occur, in order to satisfy the disallowed claim. Una voided liens
(or more accurately, potentials of unavoided liens, since no one
knows whether or when future evaluations of the relevant property
will exceed that of the bankruptcy court) would impede the
trustee's management and settlement of the estate. It would be
difficult, for example, to sell overencumbered property subject to
outstanding liens pursuant to 11 U. S. C. § 363(b) or (c), since
any postsale appreciation in the property could be levied upon by
holders of disallowed secured claims. And in a sale of debtor
property "free and clear" of the liens attached to it, see 11 U. S.
C. § 363(f)(3), the undisturbed portion of the disallowed
claimant's lien might attach to the proceeds of that sale to the
extent of the collateral's postpetition appreciation, preventing
the trustee from distributing some or all of the sale proceeds to
creditors holding allowed claims. If possible, we should avoid
construing the statute in a way that produces such absurd
results.
III
Although the Court makes no effort to explain why petitioner's
straightforward reading of § 506(d) is textually or structurally
incompatible with other portions of the statute, respondents and
the United States do so. They point out, to begin with, that the
two exceptions to § 506(d)'s nullifying effect both pertain to
the disallowance of claims, and not to
the inadequacy of
security, see 11 U. S. C. §§ 506(d)(1) and (2)-from which they
conclude that the applicability of § 506(d) turns only on the
allowability of the underlying claim, and not on the extent to
which the claim is a "secured claim" within the meaning of §
506(a). But the fact that the statute makes no exceptions to
invalidation by reason of inadequate security in no way establishes
that such (plainly
428
expressed) invalidation does not exist. The premise of the
argument-that if a statute qualifies a noun with two adjectives
("allowed" and "secured"), and provides exceptions with respect to
only one of the adjectives, then the other can be disregarded-is
simply false. The most that can be said is that the two exceptions
in § 506(d) do not
contradict the United States' and
respondents' interpretation; but they in no way suggest or support
it.
Respondents and the United States also identify supposed
inconsistencies between petitioner's construction of § 506(d) and
other sections of the Bankruptcy Code; they are largely illusory.
The principal source of concern is § 722, which enables a Chapter 7
debtor to "redeem" narrow classes of exempt or abandoned personal
property from "a lien securing a dischargeable consumer debt." The
price of redemption is fixed as "the amount of the
allowed
secured claim of [the lienholder] that is secured by such
lien." (Emphasis added.) This provision, we are told, would be
largely superfluous if § 506(d) automatically stripped liens
securing undersecured claims to the value of the collateral, i.
e., to the value of the allowed secured claims.
This argument is greatly overstated. Section 722 is necessary,
and not superfluous, because § 506(d) is not a
redemption
provision. It reduces the value of a lienholder's equitable
interest in a debtor's property to the property's liquidation
value, but it does not insure the debtor an opportunity to "redeem"
the property at that price, i.
e., to "free [the] property
... from [the] mortgage or pledge by paying the debt for which it
stood as security." Black's Law Dictionary 1278 (6th ed. 1990).
Congress had good reason to be solicitous of the debtor's right to
redeem personal property (the exclusive subject of § 722), since
state redemption laws are typically less generous for personalty
than for real property. Compare,
e. g., Utah Code Ann.
§57-1-31 (1990) with Uniform Commercial Code § 9-506, 3A U. L. A.
370 (1981). The most that can be said regarding § 722 is that
petitioner's
429
construction of § 506(d) would permit a more concise
formulation: Instead of describing the redemption price as "the
amount of the allowed secured claim ... that is secured by such
lien" it would have been
possible to say simply "the amount
of the claim ... that is secured by such lien"-since § 506(d) would
automatically have cut back the lien to the amount of the allowed
secured claim. I would hardly call the more expansive formulation a
redundancy-not when it is so far removed from the section that did
the "cutting back" that the reader has likely forgotten it.
Respondents and their
amicus also make much of the need
to avoid giving Chapter 7 debtors a better deal than they can
receive under the other chapters of the Bankruptcy Code. They
assert that, by enabling a Chapter 7 debtor to strip down a secured
creditor's liens and pocket any postpetition appreciation in the
property, petitioner's construction of § 506(d) will discourage
debtors from using the preferred mechanisms of reorganization under
Chapters 11, 12, and 13. This evaluation of the "finely
reticulated" incentives affecting a debtor's behavior rests upon
critical-and perhaps erroneous-assumptions about the meaning of
provisions in the reorganization chapters. Respondents assume, for
example, that a debtor in Chapter 13 cannot strip down a mortgage
placed on the debtor's home; but that assumption may beg the very
question the Court answers today. True, § 1322(b)(2) provides that
Chapter 13 filers may not "modify the rights of holders of secured
claims" that are
"secured only by a security interest in real
property that is the debtor's principal residence." (Emphasis
added.) But this can be (and has been) read, in light of § 506(a),
to prohibit modification of the mortgagee's rights only with
respect to the portion of his claim that is deemed secured under
the Code, see,
e. g., In re Hart, 923
F.2d 1410, 1415 (CAlO 1991);
Wilson v.
Commonwealth
Mortgage Corp., 895 F.2d
123, 127 (CA3 1990). If petitioner's construction of § 506(d)
were applied consistently in this fashion to the Code's various
chapters,
430
see 11 U. S. C. § 103(a) (providing that "chapters 1, 3, and 5
... [shall] apply in a case under chapter 7, 11, 12, or 13"),
Chapter 7 would not appear unduly attractive. In any event,
reorganization contains other enticements to lure a debtor away
from Chapter 7. It not only permits him to maintain control over
his personal and business assets, but affords a broader discharge
from prepetition
in personam liabilities. Compare,
e.
g., 11 U. S. C. § 523 (listing numerous exceptions to Chapter 7
discharge) with 11 U. S. C. § 1328(a) (listing two exceptions to
Chapter 13 discharge). Compare,
e. g., Kelly v.
Robinson, 479
U. S. 36, 50 (1986) (restitution obligations imposed in
criminal judgments nondischargeable in Chapter 7) with
Pennsylvania Dept. of Public Welfare v.
Davenport,
495 U. S. 552,
563-564 (1990) (such restitution obligations dischargeable in
Chapter 13).
Finally, respondents and the United States find it incongruous
that Congress would so carefully protect secured creditors in the
context of reorganization while allowing them to be fleeced in a
Chapter 7 liquidation by operation of § 506(d). This view mistakes
the generosity of treatment that creditors can count upon in
reorganization. There, no more than under Chapter 7, can they
demand the benefit of postevaluation increases in the value of
property given as security. See 11 U. S. C. §§ 1129(b)(2)(A) and
1325(a)(5) (permitting "cram-down" of reorganization plan over
objections of secured creditors if creditors are to receive
payments equal in present value to the cash value of the
collateral, and if creditors retain liens securing such
payments).3
3 The election available to a secured creditor under §
1111(b)(2) to treat his undersecured claims as fully secured in a
Chapter 11 reorganization notwithstanding § 506(a) does not affect
this analysis, for an electing creditor is guaranteed under the
reorganization plan only "property of a value, as of the effective
date of the plan, that is not less than the value of such holder's
interest in the estate's interest in the property that secures such
claims." 11 U. S. C. § 1129(a)(7)(B). In other words, "the present
value of such payments [to the § 1111(b)(2) elector] need only
equal the value of the secured creditor's interest in its
collateral." 5 Collier on Bankruptcy , 1111.02, pp. 1111-25 to
1111-26, n. 23 (15th ed. 1990).
431
IV
I must also address the Tenth Circuit's basis for the decision
affirmed today (alluded to by the Court,
ante, at 414, but
not discussed), that § 506 does not apply to property abandoned by
the bankruptcy trustee under § 554, see 11 U. S. C. § 554.
Respondents' principal argument before us was a modified (and less
logical) version of the same basic point-viz., that although § 506(
a) applies to abandoned property, § 506(
d) does not. I can
address the point briefly, since the plain-language obstacles to
its validity are even more pronounced than those raised by the
Court's approach.
The Court of Appeals' reasoning was as follows: § 506(d) effects
lien stripping only with respect to property subject to § 506(a);
but by its terms § 506(a) applies only to property "in which the
estate has an interest"; since "[t]he estate has no interest in,
and does not administer, abandoned property," § 506(a), and hence §
506(d), does not apply to it.
In re Dewsnup,
908 F.2d
588, 590-591 (CAlO 1990). The fallacy in this is the assumption
that the application of § 506(a) (and hence § 506(d)) can be undone
if and when the estate ceases to "have an interest" in property in
which it "had an interest" at the outset of the bankruptcy
proceeding. The text does not read that way. Section 506
automatically operates upon all property in which the estate has an
interest at the time the bankruptcy petition is filed.4 Once §
506(a)'s grant of secured-creditor rights, and § 506(d)'s
elimination of the right to "underwater" liens and liens securing
unallowed claims have occurred, they cannot be undone by later
abandonment of the property. Nothing in the statute expressly
permits such an unraveling, and it would be absurd to imagine it.
If, upon the collateral's abandonment, the claim bi-
4 The estate "has an interest," of course, even in its
overencumbered property. See 11 U. S. C. § 541(d) (providing that
property for which the debtor holds legal title alone is "property
of the estate" to the extent of that legal title). See also §
541(a)(1) (defining the bankruptcy estate to include "all legal or
equitable interests of the debtor in property as of the
commencement of the [bankruptcy] case").
432
furcation accomplished by § 506(a) were nullified, the status of
the creditor's allowed claim-i.
e., whether (and to what
extent) it is "secured" or "unsecured" for purposes of the
bankruptcy distribution-would be impossible to determine. Instead,
the claim would have to be treated as either completely "secured"
or completely "unsecured," neither of which disposition would
accord with the Code's distribution principles. The former would
deprive the secured claimant of a share in the distribution to
general creditors altogether. See 11 U. S. C. § 726 (providing for
distribution of property of the estate to unsecured claimants). The
latter (treating the claim as completely unsecured) would permit
the lienholder to share in the pro rata distribution to general
creditors
to the full amount of his allowed claim (rather
than simply to the amount of the § 506(a)-defined "unsecured
claim") while reserving his
in rem claim against the
security. Respondents' variation on the Tenth Circuit's holding
avoids these alternative absurdities only by embracing yet another
textual irrationality-asserting that, even though the language that
is the
basis for the "abandonment" theory (the phrase "in
which the estate has an interest") is contained in § 506(a), and
only applies to § 506(d)
through § 506(a), nonetheless only
the effects of § 506(d) and
not the effects of § 506(a) are
undone by abandonment. This hardly deserves the name of a
theory.
v
As I have said, the Court does not trouble to make or evaluate
the foregoing arguments. Rather, in Part II of its opinion it
merely describes (uncritically) "the contrasting positions of the
respective parties and their
amici" concerning the meaning
of § 506(d),
ante, at 416, and concludes, because the
positions are contrasting, that there is "ambiguity in the text,"
ante, at 417. (This mode of analysis makes every litigated
statute ambiguous.) Having thus established "ambiguity," the Court
is able to summon down its
deus ex machina: "the pre-Code
rule that liens pass through bank-
433
ruptcy unaffected"-which cannot be eliminated by an ambiguous
provision, at least where the "legislative history" does not
mention its demise.
Ante, at 417, 418.
We have, of course, often consulted pre-Code behavior in the
course of interpreting gaps in the express coverage of the Code, or
genuinely ambiguous provisions. And we have often said in such
cases that, absent a textual footing, we will not presume a
departure from longstanding pre-Code practice. See,
e. g.,
Midlantic Nat. Bank v.
New Jersey Dept. of Environmental
Protection, 474
U. S. 494, 501 (1986);
Kelly v.
Robinson, 479 U.
S., at 46-47. But we have
never held pre-Code practice to be
determinative in the face of what we have here: contradictory
statutory text. To the contrary, where "the statutory language
plainly reveals Congress' intent" to alter pre-Code regimes,
Pennsylvania Dept. of Public Welfare v.
Davenport,
495 U. S., at 563, we have simply enforced the new Code according
to its terms, without insisting upon "at least some discussion [of
the change from prior law] in the legislative history,"
ante, at 419.
For an illustration of just how plainly today's opinion is at
odds with our jurisprudence, one need only examine our most recent
bankruptcy decision.
Union Bank v.
Wolas, ante, p.
151. There also the parties took "contrasting positions" as to the
meaning of the statutory text, but we did not shrink from finding,
on the basis of our own analysis, that no ambiguity existed. There
also it was urged upon us that the interpretation we adopted would
overturn pre-Code practice with "no evidence in the legislative
history that Congress intended to make" such a change.
Ante,
at 157. We found it unnecessary to "dispute the accuracy of [that]
description of the legislative history ... in order to reject [the]
conclusion" that no change had been effected. "The fact," we said,
"that Congress may not have foreseen all of the consequences of a
statutory enactment is not a sufficient reason for refusing to give
effect to its plain meaning."
434
Ante, at 157, 158. And "the fact that Congress carefully
reexamined and entirely rewrote the preference provision in 1978
supports the conclusion that the text of § 547(c)(2) as enacted
reflects the deliberate choice of Congress."
Ante, at 160.
What was true of the preference provision in
Wolas is also
true of the secured claims provisions at issue in the present case:
Congress' careful reexamination
and entire rewriting of
those provisions supports the conclusion that, regardless of
whether pre-Code practice is retained or abandoned, the text means
precisely what it says. Indeed, the rewriting here is so complete
that, no matter how deeply one admires and venerates "pre-Code
law," it is impossible to interpret § 506(d) in a manner that
entirely preserves itand the Court itself, for all its protestation
of fealty, does not do so. No provision of the former Bankruptcy
Act, nor any pre-Code doctrine, purported to invalidate-across the
board-liens securing claims disallowed in bankruptcy, see 11 U. s.
C. § 107 (1976 ed.); see also 4 Collier on Bankruptcy , 67 (14th
ed. 1978), yet that is precisely what § 506(d), as interpreted by
the Court today, accomplishes.
It is even more instructive to compare today's opinion with our
decision a few years ago in
United States v.
Ron Pair
Enterprises, Inc., 489 U. S. 235 (1989),
which involved another subsection of § 506 itself. The issue was
whether § 506(b) made postpetition interest available even to those
oversecured creditors whose liens were nonconsensual. The Court of
Appeals had held that it did not, because such a disposition would
alter the pre-Code rule and there was no "legislative history" to
support the change. We disagreed. The opinion for the Court began
"where all such inquiries must begin: with the language of the
statute itself."
Id., at 241. We did not recite the
contentions of the parties and declare "ambiguity," but entered
into our own careful consideration of "[t]he natural reading of the
[relevant] phrase," the "grammatical structure of the statute," and
the "terminology used throughout the Code."
Id., at 241 and
242, n. 5. Hav-
435
ing found a "natural interpretation of the statutory language
[that] does not conflict with any significant state or federal
interest, nor with any other aspect of the Code," id., at 245, we
deemed the pre-Code practice to be irrelevant. And whereas today's
opinion announces the policy judgment that "[a]ny increase over the
judicially determined valuation during bankruptcy rightly accrues
to the benefit of the creditor,"
ante, at 417, in
Ron
Pair we were undeterred by the fact that our result was
"arguably somewhat in tension with the desirability of paying all
creditors as uniformly as practicable," 489 U. S., at 245-246.
"Congress," we said, "expressly chose to create that alleged
tension."
Id., at 246. Almost point for point, today's
opinion is the methodological antithesis of
Ron Pair-and I
have the greatest sympathy for the Courts of Appeals who must
predict which manner of statutory construction we shall use for the
next Bankruptcy Code case.
***
The principal harm caused by today's decision is not the
misinterpretation of § 506(d) of the Bankruptcy Code. The
disposition that misinterpretation produces brings the Code closer
to prior practice and is, as the Court irrelevantly observes,
probably fairer from the standpoint of natural justice. (I say
irrelevantly, because a bankruptcy law has little to do with
natural justice.) The greater and more enduring damage of today's
opinion consists in its destruction of predictability, in the
Bankruptcy Code and elsewhere. By disregarding well-established and
oft-repeated principles of statutory construction, it renders those
principles less secure and the certainty they are designed to
achieve less attainable. When a seemingly clear provision can be
pronounced "ambiguous"
sans textual and structural analysis,
and when the assumption of uniform meaning is replaced by
"onesubsection-at-a-time" interpretation, innumerable statutory
texts become worth litigating. In the bankruptcy field
436
alone, for example, unfortunate future litigants will have to
pay the price for our expressed neutrality "as to whether the words
'allowed secured claim' have different meaning in other provisions
of the Bankruptcy Code."
Ante, at 417, n.3. Having taken
this case to resolve uncertainty regarding one provision, we end by
spawning confusion regarding scores of others. I respectfully
dissent.
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