Bankruptcy Success Commandment: Know The Value of Thy Assets!

Next to your budget (see this post), knowing the value of your assets is an important key to bankruptcy success. At first glance, this admonition may seem obvious, but most people really don’t know the value of their stuff and tend to overestimate. The problem with overestimating is that what you can keep and what must be surrendered in bankruptcy is nearly entirely determined by the value of the asset. For example, in Colorado, you may protect up to $60,000 of home equity, the Colorado Homestead Exemption. So, if your mortgage is $250,000 and you think your house is worth $340,000, you may lose that house since it has $90,000 of equity. The bankruptcy trustee is entitled to that $30,000 of equity above the protected amount and therefore, you could lose the house.

It appears many people harbor the misconception that most people lose most things, if not everything, in bankruptcy, that statement is false. But, the reason most people don’t lose anything in bankruptcy is due to knowing the value of their assets and proper exemption planning. What are exemptions, read this article. So, how do you value assets for bankruptcy?

For real estate, a good starting point is a Current (or Comparable) Market Analysis (“CMA”) that can be performed by any licensed realtor. The tax assessed value, zillow.com, and other such sources are not reliable indicators of value. A CMA is good for most bankruptcy purposes and gives you a realistic idea of the sale price for your home. Insider Tip: Ask the realtor to give you a number that could sell the property in 60 days or less.

For vehicles, there is no default standard. A starting point is Kelly Blue Book, but that is only a starting point. At the end of the day, we will use whatever valuation model is in the client’s best interest. In a Colorado bankruptcy, and in bankruptcy in general, the only people that actually lose a vehicle in bankruptcy are those that want too.

For household items, think garage sale value or 2^nd hand store value (i.e. Goodwill). Bankruptcy trustees are not really interested in personal items and furnishings; the cost to take, store, and sell such items is more than any money they might receive. Also, nearly all states have enough of an exemption to cover any thing you might have. Even that $2,300 55 inch LED T.V. can only be sold for $500 at most.

For jewelry, guns, and other collectables, think pawn shop value. However, with these types of assets, you start getting into advanced bankruptcy planning as there are various valuation models and issues.

For cash and convertible cash assets (i.e. retirement, stocks, etc.), value is easy to figure, but for cash assets, exemption planning becomes the key task.

Finally, just a word on perspective, it is not always possible to protect everything; sometimes there are non-exempt assets and there is no way around it. So, if you are going to be eliminating $80,000 of credit card debt, and you have to give up $2,000 of some asset to do so, that is still the best deal for getting out of debt. But, the most successful bankruptcies result from careful planning and careful, accurate, asset valuation.