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Valuation Litigation

By Samuel H. Israel, Joshua T. Klein and Brian R. Isen

On May 14, 2012, the United States Court of Appeals for the Third Circuit issued its opinion in the case of In re Heritage Highgate, Inc., 679 F.3d 132 (3d Cir. 2012), concerning the lien of a junior secured creditor and the creditor's treatment under the debtor's Chapter 11 plan of reorganization. The Third Circuit addressed the use of lien stripping under a plan of reorganization and the relevant time and standards for valuation of the creditor's collateral.

While this decision is a must read for bankruptcy practitioners dealing with multiple levels of secured debt in formulating Plans of Reorganization, it provides equally important lessons to bankruptcy litigators addressing the shifting burdens of proof required in valuation litigation under Section 506(a) of the Bankruptcy Code. This article addresses those lessons and pitfalls to avoid in trying these types of disputes in bankruptcy court.

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