Asset Valuation Issues In Bankruptcy

Social media is the new frontier for bankruptcy trustees in Illinois and elsewhere.

Curtis James Jackson III (a/k/a rapper 50-cent) raised some eyebrows in the trustee’s office after he posted an Instagram photo that appeared to show him posing with mounds of undeclared cash; he later explained that the money was all fake. Roughly the same thing happened to a bankruptcy debtor in Florida who posed for pictures wearing expensive jewelry. When the trustee threatened to file a motion for turnover, the woman’s lawyer explained that she owned a Key West jewelry store and sometimes posted pictures to promote her product. Not all these rabbit trails end in dead ends, as a channel-surfing Pennsylvania bankruptcy judge recognized Abby Lee from the reality show “Dance Moms,” and it turned out she had not declared almost $300,000 in income from the show.

Bankruptcy lawyers commonly advise their clients to be wary of what they post on social media, and that is probably good advice for almost everyone.

Assets in Bankruptcy

If the trustee (person who oversees the bankruptcy on behalf of the judge) believes that the debtor is concealing assets, the trustee will file a motion for turnover demanding the property, so it can be liquidated and the proceeds distributed to bankruptcy creditors. The law is on their side, at least in terms of making a preliminary case, because all non-exempt property belongs to the bankruptcy estate, which is why they sometimes refer to the bankruptcy filer as the “debtor in possession.” In most jurisdictions, trustees have a financial incentive to file these motions, because they normally receive a 10 percent bounty.

In terms of non-cash property, accurate valuation is often a key to avoiding these motions. Per the Bankruptcy Code, debtors must list the as-is cash value (“garage sale value”) of each asset. For much of the property on Schedule B, such as computers and vehicles, it is usually a good idea to actually look at some garage sales, either live or online, to help determine the value. For Schedule A real property, most home investors will pay a maximum 60 percent of the house’s fair market value in an as-is cash transaction, so that figure is usually a good starting point.

Value declarations substantially below the fair market value probably need additional verification; for example, a debtor may be well-advised to get a written offer from a home investor before listing a value on Schedule A.

In terms of cash property, the issue is not so much value as ownership. Both Indiana and Illinois have rather large wildcard exemptions that can be used on savings accounts, checking accounts, and so on, so this issue does not come up quite as much in this part of the country. If the debtor has non-exempt cash, the floating check controversy often comes into play. Most people are more like trustees over their checking accounts, because deposits are basically already promised to creditors. So, if the trustee files a motion for turnover, the best defense may be that the debtor did not “own” the cash in the ordinary sense of the word.

Reach Out to Experienced Lawyers

For prompt assistance from an experienced bankruptcy lawyer in Chicago, contact the Bentz Holguin Law Firm, LLC today, because without decisive action, debt problems normally get worse instead of better.

Resource:

epubs.utah.edu/index.php/ulr/article/viewArticle/1090