By Jeff Curl, San Mateo bankruptcy attorney
In bankruptcy, we talk a lot about valuing assets. How do you value your home in bankruptcy? How about your car? How about your personal property or the “stuff” you own?
Valuation is the price assigned to something. This can be critical for determining whether you can exempt and protect certain assets like homes and cars.
Valuation of Homes
The valuation of homes matters for a couple of reasons. First, we want to know the value of your home, minus the mortgage liens to determine its equity, if any, for purposes of exempting the home. For example, if your home is worth $700,000 and you have $600,000 in mortgages, you have $100,000 in ostensible equity. I say ostensible because expenses such as a realtor’s commission count against the equity. A full appraisal by a neutral party that understands the market is usually the best choice.
In California, a family can exempt $100,000 in equity in their home. Therefore, if the home has $100,000 in ostensible equity, and really around $50,000 in equity if you calculate the realtor and trustee commissions, we know that we can exempt and protect the home
A second reason for determining these values is for determining a possible lien strip in Chapter 13. Assume your home is worth $500,000 and has two loans. The first loan is a mortgage for $550,000. The second loan is a home equity line of credit (HELOC) for $75,000. Since the first loan absorbs all of the equity and then some, the HELCO is unsecured. A proper valuation of the home let’s us know that we can “strip” the mortgage in a Chapter 13 bankruptcy.
Valuation of Vehicles
A valuation of vehicles is similar to that of home. We want to know what it is worth, subtract the liens, and determine its value. Cars are trickier in some regards because there is the market itself, appraisers, and the different guides such as Kelly Blue Book (KBB) or NADA that will each assign different values to the same vehicles. Even our local judges have differed on what is most reliable. It does seem, however, that judges all carefully evaluate the credibility of an appraiser. If it is someone with experience, who actually examined the vehicle, such appraisers are given more credence for their valuations.
Valuation of Personal Property
Vehicles are a type of personal property, but what about your other stuff? You have clothes, kitchenware, art, jewelry, electronics and other items found in your house. You have to make a good faith effort to determine what your personal belongings are worth in their used condition. Frankly, most of our common household goods just aren’t worth much. But, maybe you collected something like art or jewelry, or your great aunt gave you a potentially valuable family heirloom. Such items should be investigated and appraised where necessary. You do not want to find a trustee attempting to take something or accusing you of concealing an asset’s value because you did not take the time to properly determine its value.
Valuation is really about disclosure, and disclosure is how you make sure you have the smoothest ride through the bankruptcy process.
Image Credit: merfam
