If you own a car, motorcycle, SUV, van, RV or other vehicle and you file for bankruptcy, you'll have to list the value for the vehicle on your bankruptcy papers. The standard you use when valuing your car or other vehicle is the “replacement value.”
What Is Replacement Value?
For purposes of bankruptcy, replacement value is the price a retail merchant would charge today for a car like yours, taking into consideration the age and condition of the car. Put another way, to get the replacement value of your vehicle, determine the amount it would cost you to replace your car with one of similar age and condition, on the date that you file for bankruptcy.
Ways to Get a Replacement Value
There are many different ways to arrive at the replacement value of a car or other vehicle, but generally speaking the age and condition of the vehicle will dictate the best way to determine its value.
Many Chapter 7 trustees rely on trade publications such as the Kelley Blue Book and the N.A.D.A. Guide, or their online versions, to determine replacement value for automobiles and other vehicles. Trustees like these publications because they provide a common industry standard.
However, trade publications have limitations.
- For one, they don't take into consideration certain conditions of your car, like the fact that your air conditioner is broken or your transmission that needs to be replaced. Circumstances like these may substantially decrease your vehicle’s value.
- Also, trade publications represent a retail asking price, and not the final sales price that is negotiated between buyer and seller.
Because of these limitations, it's best to use trade publication values as a starting point. Then, consider both the condition of the vehicle and market factors when arriving at its replacement value for bankruptcy purposes.
However, if you own a newer car or a vehicle that is in very good condition, you may be able to rely on the N.A.D.A. Guide or Kelley Blue Book, or another reputable trade publication, without the need to adjust its values.
CarMax and Dealership Appraisals
Many trustees now accept vehicle appraisals obtained from CarMax as evidence of your car's replacement value. CarMax prepares appraisals based upon the condition of your vehicle and underlying market factors. Its appraisals represent what a bona fide purchaser would be willing to pay for a like vehicle in like condition.
CarMax will provide a written appraisal without requiring you to trade in your vehicle or purchase a new one. This may be a good option to consider based upon your car’s age, mileage, and condition.
You may also be able to get an appraisal from a commercial car dealership. Be sure to tell the dealership that you want a value based on the market or resale value, and not the trade-in value. Trade-in values tend to be lower than market or resale values, and may not be an accurate reflection of your car’s worth.
Whether a particular trustee or bankruptcy court will accept a CarMax or car dealership appraisal varies. To find out the practices in your area, contact a local bankruptcy attorney.
You can also get a car or vehicle appraisal from a licensed estate appraiser or auctioneer. Although trustees generally accept this method for all vehicles, debtors usually only use it for more valuable vehicles, such as high-end or antique cars, because these appraisals are often expensive. If you use a licensed appraiser, be sure to make clear to the appraiser that the appraisal is for your bankruptcy.
The Importance of Accurate Written Valuations
Whether you are filing a Chapter 7 or Chapter 13 bankruptcy case, it is important to obtain accurate written valuations for your vehicles. There are two reasons for this:
You Sign the Bankruptcy Petition Under Penalty of Perjury
When you provide values for any property that you own on your bankruptcy petition, including your vehicles, you do so under penalty of perjury. This means that you have a duty to disclose all of your assets and their respective values, truthfully and honestly. Failure to do so may result in a dismissal of your bankruptcy proceeding, loss of your discharge, and/or fines and penalties.
Accurate Values Help Protect Your Interests
The value of your car may be important in your bankruptcy case. For example, your car's value may affect whether it is exempt or not. It also may determine how far you can reduce your car loan in a Chapter 13 case (this is called a cramdown).