Valuation of property (personal property or real estate) is incredibly important in the bankruptcy context. Without knowing how much certain items are worth, the court would have no way to fairly divide assets.
In all bankruptcies, debtors are asked to put a value on his/her assets. That includes ALL of the assets down to the number of lamps in the debtor’s living room. While that level of detail may seem unnecessary, imagine if that lamp came from Tiffany’s. In that case the court would certainly want to know about that lamp because what happens to it would be very important to the parties involved in the case.
That brings us to the question of how to determine these values. Several valuation methods are commonly used and the type used is determined by the type of property that is being valued:
- Vehicles – National publications (like NADA and Kelley Blue Book) list value.
- Real estate – Valued based on local taxing authority appraisals or comparable sales in the area.
- Luxury items (jewelry, furs, etc.) – Valued by an appraiser.
- The debtor’s small personal items (clothing, furniture, etc.) – Valued at “garage sale” price. Think: “If I picked up this item at a garage sale, how much would I expect to pay?” Obviously this method is inexact but courts have determined that it is a good way to keep the system honest, but moving along.
There are certainly ways that the court can double check debtors to avoid reliance on untruthful representations but to a degree in the valuation arena, as in many other areas, the bankruptcy system relies on debtor honesty to operate properly. And woe be to the debtor who is caught willfully lying to the court about such matters. It can cost money, time, and possibly a visit to your local prison.
If you find yourself valuing items in a bankruptcy context and you have any questions, please contact a trained bankruptcy attorney to discuss the proper valuation method.