Determining The Value Of Your Vehicle In Bankruptcy

Section 11 U.S.C. 506(a)(2) states that property is to be valued at the retail value.
In relevant part, Section 11 U.S.C. 506 (a)(2) states:

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
date as 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 the value was determined.

But how is retail value actually decided? In Re Sandy Lynn Penny (Bankr. N.D. Cal. 2011), (“Penny”), provides a method of determining retail value. Ms. Penny had a Dodge Charger (“Charger”) which she valued at $4,175.00, while CitiFinancial Auto Corporation (“CitiFinancial”) claimed that the vehicle was worth $16,850.00.

In Penny the court held a hearing to determine the value of the vehicle. Ms. Penny
testified at the hearing that the vehicle should be valued in the low $7,000.00 range based
upon the fact that the Charger’s check engine light had been on for a long time, that her
mechanic had not been able to precisely tell her what was wrong with the vehicle, and
that the vehicle’s onboard diagnostic system presented a “P0300” trouble code, indicating a range of 15 possible problems with the engine. Her testimony also was that the vehicle had about 115,000.00 miles as of the petition date and 132,000 miles as of the time of trial. Finally her testimony was based upon Kelley Blue Book values.

CifiFinancial presented the testimony of an appraiser who estimated the value to be $10,132.00, taking into account the estimated cost of repairs.

In Penny the court held that the Kelley Blue Book was not the final word as to vehicle value. The court allowed the Kelley Blue Book value to be adjusted downward by the cost of the repairs. It also allowed a 5% downward reduction of the retail price to take into account the price negotiations that typically would occur between a buyer and seller.

What is to be learned from the Penny decision? Kelley Blue Book is the starting point for valuing your vehicle but deductions for the age of condition of the vehicle as well as for the price negotiations that occur between a buyer and seller should be taken into account in deciding value.

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