Home / Uncategorized / How is the Value of an Automobile determined if you want to Redeem your Auto in a Chapter 7 or “Cram it Down” in a Chapter 13 Bankruptcy?

How is the Value of an Automobile determined if you want to Redeem your Auto in a Chapter 7 or “Cram it Down” in a Chapter 13 Bankruptcy?

Under the Bankruptcy Code, the value of personal property is determined under § 506(a)(2) which provides:

If the debtor is an individual in a case under chapter 7 or 13, such value with respect to personal property securing an allowed claim shall be determined based on the replacement value of such property as of the date of the filing of the petition without deduction for costs of sale or marketing.  With respect to property acquired for personal, family, or household purposes, replacement value shall mean the price a retail merchant would charge for property of that kind considering the age and condition of the property at the time value is determined.

A starting point is an appropriate number taken from either the NADA Official Used Car Guide or the Kelley Blue Book which provide “Retail Values” upon which most Courts rely as a starting point. Once you have ascertained the proper starting point, the parties are free to present expert or other evidence to assist the presiding Bankruptcy Judge.

Factors that Court’s consider in determining the value of an auto include the following:

1. The credentials and experience of the appraiser;

2. The mileage of the vehicle relative to its age;

3. The extent of the examination of the vehicle by the appraiser – for example – did the appraiser take the vehicle on a road test?

4. The actual retail selling price of similar vehicles in good condition without any material adjustments;

5. Downward adjustments for necessary repairs – tires, brakes, exhaust, paint and other necessary body work and other repairs revealed by a road test;

One leading Bankruptcy Judge in the Eastern District of Michigan concluded that the actual road test conducted by the Debtor’s appraiser spoke to the thoroughness of his appraisal and to the credibility of his conclusion.