What Is My Car Worth in Bankruptcy? NADA vs. Kelley BlueBook Values
Car Value in Bankruptcy: When Does It Matter?
In a large number of Chapter 7 bankruptcy cases, the value of a vehicle only matters if you own the vehicle free and clear of any car loan lien, or if you have nearly completed your payments are nearing the point of owning it free and clear. Cars depreciate fast, and they rarely outpace a lien amount as they decrease in value.
The reason this matters in Chapter 7—when a vehicle does have “equity” above and beyond a lien balance at all—is that, in Chapter 7 bankruptcy, you can lose the car. If a vehicle is worth more than the protection provided for a debtor’s vehicle under the Bankruptcy Code, it may be seized and sold off by the Chapter 7 Trustee assigned to the case.
Thus, the value of a vehicle can very much become an object of contention: is the car worth more than the debtor says in his or her petition that it is worth?
An important question for not only retention and preservation of the vehicle but also for purposes of protecting your right to a discharge. Under-valuation of property has been a basis for denial of discharge or “bad faith” arguments against debtors in bankruptcy courts.
In Chapter 13 cases, the purpose of a proper valuation is important for the same “bad faith” counter-argument purpose but also for a different reason: in Chapter 13, you can “buy your car” back out of the bankruptcy for what it is worth in real fair-market value, discharging any additional amount you owe on the car loan attached to it.
In other words, if you have a car worth $3,000.00, but you owe $10,000.00 on it, you can pay the auto loan lender $3,000.00 (plus modest interest) through the Chapter 13 plan and then separately treat and discharge (in full or in part) the other $7,000.00 you owe.
This is called a “cramdown,” and it only works on vehicles that have more than 75,000 miles and for which you incurred the lien outside the 910 days prior to the filing of the Chapter 13 case.
Otherwise, vehicles and other assets are not “liquidated” in Chapter 13 the way they are in Chapter 7.
What Is “Fair-Market Value?”
Here in the Eastern District of Michigan, valuation of vehicles which do not exceed the value of the lien upon them or the value of which is not contested for any reason receive little push-back from Trustees or creditors at the NADA Blue Blook “Clean Retail” level (or even the next-lowest value). However, when valuation needs more teeth to it, courts have held that (short of an appraisal by an expert in vehicle valuation who meets the court’s criteria for expertise, etc.) that Kelley Blue Book “Private Party Value” to be appropriate.
Why Kelley PP Value? The court in this Kansas decision here found that Kelley PP Value reflects the actual prices of vehicles sold, as reported to Kelley, not an initial asking price or some fuzzier estimation. While the Court in this case also had issues with the creditor’s appraiser’s qualifications and method of computing value, the important take-away is that what something is worth is what would actually be paid for it.
A valuation method that does not reflect that reality is likely to be scrutinized harshly.
If you are a Michigan resident and would like to explore your options for a Chapter 7 or Chapter 13 bankruptcy with an experienced Michigan bankruptcy attorney, please contact us at (866) 674-2317 or click the button below to schedule a free, initial consultation.
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