Bankruptcy: The New Asset Valuation Method

As you may know, some of the legal work I perform is for clients seeking to collect against debtors. I often advise my creditor clients that the real work of collecting on a bad debt does not begin until after a judgment has been entered against the debtor. It is not until after a judgment is entered that the collection attorney is able to begin the formal post judgment discovery process.

One of the tools used in post judgment collections is a set of interrogatories (questions) regarding the debtor's finances. The debtor is asked under oath to list all of his or her assets and to give a value for each asset. The value usually listed by a debtor is what the debtor would receive for the asset if it were sold at an auction or "fire sale."

Bankruptcy and the Old Asset Valuation Method
Until recently, bankruptcy debtors have also been able to list their assets at the "auction value." This has been an incredible benefit to bankruptcy debtors trying to hold onto assets. If the value of an asset is less than the cost it would take to sell the asset at auction, bankruptcy trustee prudence dictated allowing the debtor to retain the asset. On the other hand, the higher the value of an asset the greater the likelihood the bankruptcy trustee would take the asset and sell it to pay back creditors.

The difference between the auction value and replacement value of vehicles, furniture, boats, clothing, etc. is usually significant.

Bankruptcy Assets Now Must Be Valued at Replacement Cost
The new bankruptcy laws require that a bankruptcy debtor now value his or her assets at what it would cost to repurchase the assets at a retail store. The debtor is allowed to account for the asset's age and condition. In almost every instance, (even accounting for age and condition of an asset) the value of the asset will go up and the likelihood of the asset being taken and sold by the trustee increased.

For more information on the new bankruptcy law changes see my articles on whether bankruptcy is right for you, the income eligibility requirement, the means test and bankrupcty and student loans.
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