When I prepare a bankruptcy petition, one of the most important components is making sure that property is accurately valued. This is because exemptions and cram down are based on asset values. An exemption is what allows you to keep property after bankruptcy. If property is too valuable, it can be liquidated to pay back your unsecured creditors in a chapter 7 bankruptcy. In a chapter 13 bankruptcy, you can do what is known as a “cram down” where you only pay a secured creditor what the asset is worth. In both examples, it is important to value the asset correctly. If your bankruptcy lawyer values the asset too high, then you will not get the most out of your bankruptcy. On the other hand if the asset is valued too low, then you run the risk of an objection by the trustee or a secured creditor.
You want to avoid an objection to a property valuation. It can happen in some cases because a creditor just wants to see your reaction. But most of the time, the only reason you get an objection is because the value is way too low. While you are working with your bankruptcy attorney to prepare the petition, make sure that he has all of the relevant information on the asset. The reason that you want to avoid an objection, besides the stress factor, is that it’s hard to value property and there’s no way to know how the court will rule.
The asset that is most commonly argued over is a car. You see most assets do not have very much value or they are hard to resell. But there is a huge market for used cars and there are all kinds of resources for valuing used cars. Additionally, cars tend to be people’s second most valuable asset, after their house. Valuing a car is a good example of how your bankruptcy lawyer can protect your property through a well drafted petition.
I do no just look at the regular Kelley Blue Book value, because I am trying to protect you from an objection. The first thing to realize is that you cannot just pick the lowest value out there. That will only encourage an objection. Second, in order to get a good valuation, you have to use the retail value option in the Kelley Blue Book. When you pull the retail value, you will probably notice that it is based on the car being in excellent condition. In reality most cars are not in excellent condition. So then you get the regular Kelley Blue Book value for your car, which is based on condition. Take those two values and compare them. You should try to be somewhere in the middle. If there’s any question about which value to use, it is better to slightly overvalue the property. Finally, you print out both valuations in case there is a question later.
This does not guarantee that there won’t be an objection, but it gives you evidence and a good argument that your valuation was done in good faith and is accurate.