Dewsnup v. Timm

Syllabus 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 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 (CA10 1990), 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. THOMAS, J., took no part in the consideration or decision of the case. Timothy B. Dyk, Washington, D.C., for petitioner. Richard G. Taranto, Washington, D.C., for respondents. Ronald J. Mann, Washington, D.C., for U.S., as amicus curiae, supporting respondent. Justice BLACKMUN delivered the opinion of the Court.