Protecting Assets in Bankruptcy Is Often About What Your Property is Worth

We’ve previously discussed how filing a Chapter 7 bankruptcy won’t necessarily involve you losing any personal property, and how in many cases, you may lose none at all. San Diego’s bankruptcy courts, like those nationwide, allow debtors to use exemptions to keep certain personal property.

But it’s important for any bankruptcy client to know before filing whether there is a risk of property being taken by a bankruptcy court. To do that, it’s important to understand how valuations work.

Exemptions and Value

As we’ve said in the past, exemptions are pots of property or items that a bankruptcy debtor can keep and can’t be taken by a bankruptcy trustee. Some items have unlimited value—for example, in most cases, a retirement investment is exempt no matter how much its value.

But in some cases, exemptions may be based on value—for example, you may be able to keep $10,000 in personal property, or $1,000 in a vehicle, etc. (Note that the actual amounts that you can keep are dependent upon your personal situation, but for now, the amount isn’t important, it’s how the amount is calculated).

How do you know what your stuff is worth? That question can be more complex than you may think.

Valuing Property

In the real world, we want our stuff to be worth as much as possible. But in the world of Chapter 7 bankruptcy, we want our stuff to be worth less. The less our stuff is worth the more we can fit into our monetary exemption limit. If you have $10,000 in exemptions, you’d probably rather fit every single item in your household into it and keep it all, as opposed to one $10,000 painting collection you might own.

A bankruptcy court generally uses an ebay or craigslist value. That is—what would your stuff yield at an auction in person or online? That $3,000 big screen TV you bought in 2012 may not yield $200 today. Most everyday items in our households aren’t worth very much on that basis. Factor in wear and tear, and technology changes, and the value of your property goes down even more. The less it’s worth, the more you get to keep.

You don’t need to be exact. In most cases, doing your own online search of property is a sufficient evaluation of what something is worth. Some items, such as routine silverware, old clothes, or other personal use items, may have no value at all.

Items that are liened may have no value at all. A $40,000 car with a $39,000 lien only eats up $1,000 of your exemption limits.

Hiring Appraisers

In some cases, it may be necessary to have a professional evaluate your household items. This is often done (1) when there is a dispute between you and the bankruptcy trustee as to what something is worth, and (2) when the item is a specialty item, such as a collectors item (stamps, old comics, paintings, instruments, etc.) or a tool or machine that’s used in a specialized and specific trade.

But appraisers can be expensive, and often, it’s easier to just negotiate with the bankruptcy trustee to see if there’s a negotiated solution that can be reached.

If you’re considering bankruptcy, hire attorneys that understand bankruptcy planning. Let experienced San Diego bankruptcy attorneys evaluate your case and discuss with you the best and safest path to discharging all of your debt. Contact the Bankruptcy Law Center for a free consultation today.