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that the debtor can make a partial return of collateral in full satisfaction of an oversecured claim, based on the appraised value. Such plans have been called "dirt for debt" plans or "eat dirt" plans. In Arnold & Baker, the Ninth Circuit rejected such a plan, supposedly as a matter of law, even though the bankruptcy court's valuation of the property was not found clearly erroneous and allowed a 10% equity cushion. The Ninth Circuit also expressly declined to hold, however, that partial return of collateral can never satisfy indubitable equivalence. This leaves unanswered what legal principle was used to reverse confirmation in the case before it while leaving the valuation intact.
Valuation of collateral to be returned is of course a critical factor. In FCX, the Fourth Circuit affirmed a valuation of a non-profit agricultural cooperative association's "patronage certificates" at face value rather than present value. The cooperative argued that present value was less than face value because, absent bankruptcy, the debtor could not force a present redemption because older certificates should be redeemed first; the court rejected that argument, because the cooperative had discretion to redeem the certificates at face value.
From the debtor's standpoint the most useful application of the "indubitable equivalent" alternative is to shift the secured claim to other collateral. Thus in Sun Country, the Fifth Circuit held that shifting the security for a debt from a mortgage on a single 200 acre parcel to a security interest in 21 notes from lot purchasers secured by liens on 21 separate parcels constituted "indubitable equivalent." While the approach is certainly theoretically correct, the sparse opinion does not reveal why the bankruptcy court apparently relied on the face value of the notes and rejected the secured creditor's argument that their present value was determined by what they could be sold for, which was only 30-50% of their face value due to their poor payment history. Subsequent opinions pointed out how the subsequent history of those notes demonstrates the problem with valuing those notes at face value, as the Sun Country trial court apparently did. The Fifth Circuit did not rule that notes should be valued at face value, but merely affirmed the bankruptcy court's conclusion as supported by sufficient evidence. This highlights the need for both creditors and debtors to
