A Chapter 7 is often called a liquidation bankruptcy because a bankruptcy trustee will take your non-exempt property and sell the personal property to pay off as many of your unsecured debtors by a priority list that he can. What unsecured debts not paid off will be discharged at the end of the bankruptcy process.
As part of your responsibility to the Chapter 7 process, you are required to list all of your personal property on different bankruptcy court schedules and put a current fair market value on each of the personal property listed. These schedules are part of the application process and give the trustee a working knowledge of what may or may not be liquidated.
A lot of filers stress out over what they think the current fair market value on property they list really is. They do not want to place values either too low or too high and bring it to the attention of the bankruptcy trustee. In effect, they mostly fear either getting into trouble or losing their property. Common sense can go a long way in helping to relieve those fears.
To help filers, a group of trustees from one particular state gave a worksheet to each filer that had this information about replacement values:
“HOW TO DETERMINE THE REPLACEMENT VALUE OF YOUR PERSONAL PROPERTY: You will need to know the replacement value of any personal property that you own when your bankruptcy case is filed, even if the property is mortgaged, pledged, or otherwise subject to a lien. The replacement value of property is the price that a retail merchant would charge for property of that kind, considering the age and condition of the property at the time the bankruptcy case is filed. You can find the replacement value for items on Craigslist, eBay or at a thrift store, such as Goodwill and the Salvation Army. The value of personal property that is subject to a valid lien or mortgage is the replacement value of the property as of the date the bankruptcy case was filed without deducting anything for the cost of selling or marketing the property.”
The trustees are making it clear replacement value can be something bought at a garage sale to replace your personal property if it is the same age and condition. No one really knows what used personal property will actually sale for, but an educated guess is most often as good as it gets.
Original costs are not much help in determining replacement value unless the item is less than a year old. Then, condition and depreciation still come into play. A bankruptcy court trustee in a Chapter 7 is looking for items on the schedules that are non-exempt and worth something to the bankruptcy estate. The trustees are usually not interested in trying to nickel and dime the estate to death.
So, if you have researched each item of personal property that might be liquidated in the Chapter 7, and you have made an educated guess at the age and worth of the item, you have really done all that is reasonable and expected by most bankruptcy court trustees.
One way to be more certain about how a particular bankruptcy trustee determines replacement values in personal property is to ask your bankruptcy lawyer who should be familiar with the local bankruptcy court and their customs.
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