V Is For Value In Bankruptcy Alphabet

The Letter V is for Value in my bankruptcy alphabet.

The value of one’s assets drives exemptions and the question of what you get to keep through bankruptcy.

The value of your assets that are subject to liens also determines whether you can void liens on those assets.

I’m fond of saying that bankruptcy is a snapshot of what you own and what you owe on the day you file bankruptcy. The workings of a bankruptcy case revolve around what your assets were worth on the day you filed bankruptcy.

It’s sometimes hard for families to realize (and write down on their bankruptcy schedules) that the value of their personal property is very little, since value for these purposes is what you could sell the stuff in question for. Particularly in today’s distressed economy, that may be a disappointing number.

What’s it worth

I have strange conversations with clients about the value of their assets.

Asked what their household goods are worth, they give me a substantial number. Skeptical, I ask “Could you sell them now for that?”. “Oh, no,” comes the reply, “but that’s what they’re worth.”

Sorry to say, but the value of assets in bankruptcy is what they can be sold for, today.

Value critical to exemption law

Many exemptions are capped at a certain dollar value.

In California, for instance, you can exempt $7,175 in jewelry, heirlooms and works of art. So the fact that things you bought for much more are saleable today for far less works in your favor if you want to keep the asset.

Your treasures are more likely to fit within the exemption at the lower value.

Another way a lower value at filing works in the client’s favor involves assets that are encumbered by voluntary or involuntary liens. The lower the value of home, business, or timeshares, the greater the chance the debtor can strip off liens that don’t really attach to equity in the asset.

A lien that is stripped off is gone forever, so you reap dividends into the future because of that lower value.

This valuable stuff has been brought to you by the letter V.

V can also stand for Vehicles in bankruptcy and for Vesting,