What Does Replacement Cost Mean in Bankruptcy?

Learn how to determine the current value of your property in bankruptcy.

When you file for bankruptcy, you’ll list all of your property on form Schedule A/B: Your Property. Completing the form will require you to provide a description of everything that you own, as well as its current value. To assess an item’s worth, you’ll use its “replacement cost.”

(For more information, see Completing Bankruptcy's Schedule A/B: Your Property.)

Valuing Your Property in Bankruptcy: Replacement Cost

In bankruptcy law, the current value of personal property (everything other than real estate) is the item’s “replacement cost” at the time you file your case. The replacement value is the amount you’d pay in a retail store for an item of the same age and condition.

Example. Suppose that you purchased a self-propelled lawnmower for $250 two years ago. A mower used weekly might be in worn, but working condition. In that case, the value would be the amount you’d pay for a two-year-old self-propelled lawnmower in used but working condition. If, however, the mower sat unused in the box, you’d list its value as the amount that you’d pay for a two-year-old self-propelled lawnmower in new condition.

For most household items, it’s unlikely that the bankruptcy trustee—the official who will review your paperwork—will question the dollar amount that you place on a particular item. For such things, it’s fair to use the price that you’d pay if you were to repurchase the item in a thrift store.

If, however, you own something that is collectible, unusual, or rare, you might want to consider having it appraised. You can expect the trustee to do the same if it appears that you underestimated the worth of valuable property.

(For more details, see How to Value Personal Property in Bankruptcy.)

Why Does Property Value Matter?

You can protect (exempt) the property needed to maintain a house and job, such as furnishings, clothing, and a modest car, when you file for bankruptcy. But you might not be able to keep everything (although many people can).

Each state determines the particular quantity, type, and value of goods that its residents can keep. For example, you might be able to retain $3,000 in jewelry. Any jewelry exceeding that amount will be considered “nonexempt.” You can figure out what you’ll be able to protect by reviewing your state’s exemption statutes.

You’ll list the property that you can protect on Schedule C: The Property You Claim as Exempt. The trustee will review your forms. If you have nonexempt property in a Chapter 7 case, the trustee will liquidate (sell) it for the benefit of your creditors. In a Chapter 13 case, you’ll pay the value of your nonexempt property in your three- to five-year plan.

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