Case Summary:
Four creditors in a Chapter 13 case filed claims secured by the Debtor’s home. A hearing was held to determine the value of the home. After subtracting the first three secured claims from the determined value, there was $4,024.22 in equity remaining. Therefore, the fourth claim (Sherman) was entitled to a secured claim of $4,024.22 and a general unsecured claim for the remainder of its claim. Sherman filed a motion to reconsider based on its assertion that the equitable doctrine of marshaling of assets should be applied. Since a priming creditor’s claim was also secured by the Debtor’s automobile, Sherman argued that the creditor should be required to satisfy its debt to the extent possible through the automobile, so to leave more equity in the home to secure Sherman’s debt. A request for marshaling of assets must be brought as an adversary proceeding pursuant to Bankruptcy Rule 7001. Sherman brought its request for marshaling as a defense to the Debtor’s objection to claim. Sherman’s attempt to argue for marshaling in this manner does not allow a full inquiry into facts relevant to the elements listed above. Nor was the evidence presented at the hearing sufficient to make the necessary findings, if the procedural requirements were ignored.

Key Terms:
Claims
Marshaling