Valuing Assets In Bankruptcy Cases

Most bankruptcy exemptions in Illinois and Indiana are dollar-based as opposed to item-based. So, a certain amount of home equity is exempt as opposed to the houses themselves, and a certain amount of vehicle equity is exempt as opposed to the vehicles themselves. For the most part, these exemptions are quite generous and debtors can typically use the equity exemptions to exempt the assets with no problem at all.

However, if the debtor has a lot of home equity or a particularly valuable vehicle, asset valuation on Schedule A or B is an issue. Federal law requires debtors to list the fair market value on these schedules. Unless there is an actual buyer and seller who agree on a sales price, it is almost impossible to determine the fair market value. So, a reasonable estimate must suffice. Furthermore, the fair market value does not include noneconomic or future value. A Model T Ford body may have tremendous nostalgic value to many people, in addition to potential economic value, but in terms of bankruptcy fair market value, it is basically only a non-working used car.

Therefore, an asset’s value is the “garage sale” value, and not its sticker price or how much the owner believes it to be worth.

Houses

“Garage sale” values are also immediate. It is the price that someone would pay today for the item as-is, and not the amount they would pay later that day or next week. In consumer bankruptcies, most debtors use the home values listed on the tax appraiser’s website. These values are often artificially high, so the county can eek out a few extra dollars in tax revenue. Moreover, they assume that the transactions are listed sales, wherein the seller and buyer extensively negotiate over the price and there is a subsequent home inspection.

To determine the garage sale value, one probably needs to consider the home’s value if a home investor purchased the house for cash without performing a complete inspection. As a rule, home investors will pay a maximum 60 percent of the house’s fair market value in as-is immediate cash transactions. Therefore, if the county tax appraiser says a house is worth $200,000, its garage sale value may only be $100,000 which is the first offer that a home investor would probably make. The lower valuation often means that the owner has negative equity in the home as opposed to positive equity.

Vehicles

Many people either drive newer cars or ones that are more than five years old. Newer cars usually have high loan balances and little equity, while used cars are paid off but have essentially no value. In other words, a 2015 Corvette may have a high resale value, but the owner has probably paid almost nothing towards the unpaid principal balance. On the other hand, a 2005 Corvette may only be worth a few hundred dollars, particularly if it needs any mechanical or body work.

The trustee (person who oversees the bankruptcy on behalf of the judge) is not a used car dealer. By the time the trustee pays off the loan (if there is one), gets the car in saleable condition, stores it, and pays all other costs associated with the sale, the creditors may be upside-down on the transaction, and it is therefore not in their best interest for the trustee to seize the item.

Count On Experienced Lawyers

To take the first step towards your financial fresh start and properly value your assets, contact an experienced bankruptcy lawyer in Chicago from the Bentz Holguin Law Firm, LLC. Convenient payment plans are available.

Resource:

washingtonpost.com/blogs/where-we-live/post/selling-a-home-to-a-real-estate-investor/2012/12/11/5907944e-40bb-11e2-a2d9-822f58ac9fd5_blog.html