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Intended Use of Property May Control Valuation as Part of Bankrupt Estate
Description Court upheld the valuation of a parcel of land at a lower value based on its current and intended use by parties in bankruptcy. The parties do not have to convert the land to a higher valued use by subdividing the land, as was requested by a creditor.
Topic Bankruptcy
Key Words Property Valuation; Highest and Best Use
C A S E   S U M M A R Y
Facts The Donatos filed for Chapter 13 bankruptcy. The IRS had a secured claim of $112,000 for unpaid income taxes. That claim was behind other parties' secured claims of $200,000. The Donatos' primary asset is 14 acres of land their expert valued at $186,000 for use as a single parcel on which one home would be built, which was the Donatos' intended use. IRS experts testified that if the land was subdivided, it was worth $926,000, which would be its highest and best use value. The bankruptcy judge found the value of the land to be $186,000, which made the IRS claim unsecured since the assets would not be sufficient to reach the IRS claim. The IRS appealed, contending the land should be valued at its highest and best use, which would provide a sufficient amount to secure the IRS claim.
Decision Affirmed. Central to the valuation of an asset is its use. The Donatos contend that they have no intention to subdivide the land, so the higher valuation is not relevant. There is no evidence that they intend to subdivide the land; they cannot be forced to do that. The bankruptcy court was proper in its determination that the land's value is $186,000 in its intended use.
Citation In re Donato, 253 B.R. 151 (M.D., Penn., 2000)

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