SECTION 506 Clause Samples

Section 506 primarily establishes the rules for determining the validity, priority, and extent of secured claims in bankruptcy proceedings. It outlines how a creditor's claim, secured by a lien on property, is valued and whether any portion of the claim is considered unsecured if the collateral's value is less than the amount owed. For example, if a debtor owes more on a mortgage than the property is worth, Section 506 allows the court to split the claim into secured and unsecured portions. This clause ensures that creditors receive fair treatment based on the actual value of their collateral, thereby clarifying the distribution of assets and reducing disputes over claim amounts in bankruptcy cases.