How to Value Your Car in Bankruptcy
Valuing your car correctly can make a big difference in bankruptcy.
Valuing your car, van, truck, motorcycle or other vehicle is an important part of a bankruptcy case; when you file for bankruptcy, you must include a list of everything you own and how much each item is worth. If you have a car, using the right valuation method could mean the difference between your keeping the vehicle or losing it to the trustee.
The Standard for Valuing Property in Bankruptcy
There are several different standards for valuing a car in bankruptcy, and which standard applies to you depends on the law in your bankruptcy district or your federal circuit.
Retail replacement value. The most common standard for valuing a car in bankruptcy is the retail replacement value. The retail replacement value is what you would pay for a similar vehicle in a similar condition in the current market, as of the date you file your bankruptcy case.
Other valuation methods. Your bankruptcy district or circuit may use a different standard, however, so make sure to find out the standard in your area. Other valuation methods include the private party value, which is the price you would pay if you purchased the vehicle from a private party and not a dealership, and trade-in value, which is the value a dealer would apply if you turned in the car to buy a new vehicle.
Methods for Valuing a Car in Bankruptcy
Whatever the standard, there are a few ways you can find the value of your car for your bankruptcy paperwork. These include:
Sale Price. You can look online and in newspapers to see what cars of your make, model, and age are selling for. This valuation method is more of an "educated guess," but it is sufficient in most situations.
Blue Book Value. "Blue book value" is a method based on using trade publications such as the Kelley Blue Book, the Black Book, or the NADA Valuation Guide. These publications are updated regularly and allow you to find the retail value, the trade-in value and the private party value based on your vehicle's make, model, model year, and condition. You will need to know your car's year, make and model, as well as have a reasonable assessment of whether its condition is Excellent, Good, Fair, or Poor and whether it has any modifications that may alter the value. For example, if you have a 2007 Nissan Altima, do you have an Altima S, or an Altima SE? One is worth more than the other.
A Formal Appraisal. You can hire a professional to inspect your car, note its condition, and appraise the value based on the condition, make, model and year, as well as market conditions. Appraisals are the most reliable method for valuing your car, but they are expensive and take up time, and they are generally only useful if the car's value is contested or if you are in a situation where the car's value is of great importance, such as a vehicle redemption or a cramdown.
Which Car Valuation Method to Choose
The method you choose will depend on multiple factors. If the value is easily apparent, you can use a more lax method of valuation. For example, if you just bought your car, it is likely worth the same or less than what you owe on it, making the valuation less important -- the trustee will only take and sell a car that has equity. If you own your car outright but it is very old (not classic) and likely worth less than your exemption, your value can be more of an educated guess based on limited research.
However, if you own a car with some value and you owe little or nothing on it, an exact value becomes more important. Similarly, if you have a car loan that you can cram down in a Chapter 13 bankruptcy, the creditor you owe for the car will fight for a higher value so it can get paid more. In this situation, you will need a precise valuation with supporting documents. Using the blue book value is a starting point, but an appraisal may be in order. (To learn more, see Your Car in Chapter 13 Bankruptcy.)
Another case where an appraisal may be helpful is if you're in a Chapter 7 case and intend to redeem your vehicle, which means pay a lump sum in the amount of the car's value to remove the lien and own the car free and clear. In that case, the creditor you owe for the car will want a precise value. (To learn more about redemption, see the articles in Your Car in Chapter 7 Bankruptcy.)
To learn how to value your home or personal property in bankruptcy, see Completing the Bankruptcy Forms.