Will the Bankruptcy Court Take My Children’s Property?
The bankruptcy law requires the debtor to list all of his or her assets in paperwork filed with the court. The court requires the debtor to file a standardized form called “Schedule B” which lists all of the debtor’s property. The instructions for completing Schedule B direct the debtor to “list all personal property of the debtor of whatever kind.”
A common question from bankruptcy debtors is, “Do I have to list property that belongs to my child?” The answer is, “It depends.” If the child is a minor, you likely own any property that you purchased for the child, like bedroom furniture, clothing, toys, etc, even if you gave the property as a gift. On the other hand, if a minor child paid for an item from his or her own funds, then you would identify your relationship to the property on Schedule B. For instance, if your 17 year old son worked a summer job to purchase a car with is own money, your disclosure would identify the car and state that it is being held for a minor child. The court cannot take what is not yours.
Property that has been transferred to a minor or adult child with the intent to protect the asset from turn-over during the bankruptcy must be disclosed. These transfers are often attacked as fraudulent and may be lost during the bankruptcy case. The usual problem with this type of transaction is it is done without the guidance of an attorney. State and/or federal exemptions that can protect the debtor’s assets may be compromised when the property is transferred immediately before filing bankruptcy. The legal protections available to you may be lost by this transfer.
Money held in trust for your child is generally not property of the estate. For instance, a bank account set up under the Uniform Transfers to Minors Act (UTMA) naming you as custodian is usually protected. This type of account is irrevocable and the money belongs to your child, not to you. However, funds you contribute to this account during a time when you are insolvent may be found to be fraudulent transfers and the Chapter 7 trustee could obtain the funds to pay your creditors.
Protecting assets belonging to a debtor’s child is usually not an area of large concern. If you have an unusual situation and your child has an ownership interest in a valuable asset, it is important to discuss the best means to protect the asset with an experienced bankruptcy attorney. Don’t leave the protection of your child’s asset to chance. Get the advice you need by calling today.
How to Value Household Property in Bankruptcy
During bankruptcy a debtor is required to reveal all assets and give an estimated value of the property. When the asset is cash money or an investment, figuring its value is easy. In other cases nailing down a value can be very elusive. This is especially true when dealing with a unique or expensive household item. So how does the bankruptcy trustee expect the debtor to come up with a value for household property?
To understand how to value household property for bankruptcy purposes, it is important to understand the bankruptcy process. One of the chief functions of the bankruptcy trustee is to uncover assets for the benefit of creditors. Federal and state laws allow the debtor to keep certain modest items of household property that are considered “necessary,” like clothing and household items, but only up to a certain dollar amount. That amount is called an “exemption,” and that property is considered “exempt” and protected from a creditor’s collection remedies. Any property that is worth more than the allowed exemption amount is subject to be liquidated, usually at auction.
So the easy answer to how household property should be valued is, “At auction prices.” Since auction prices can vary, that doesn’t really answer the question at all. Instead, what most bankruptcy trustees suggest is to set a price like you would at a yard sale. Additionally, internet resources like eBay can be helpful to determine the quick-sale market value of a unique item. Using one of these on-line resources can provide good evidence that your new-in-box Barack Obama Chia Pet is only worth $20.00.
Many used household items, like common dinner dishes or bedding, have little or no value. On the other hand, a grandfather clock, piano, or gun safe usually has some value. A bankruptcy trustee is not in the used furniture business, and will usually incur significant costs in selling a debtor’s property. Consequently, the trustee will not be interested in your household property unless you own a non-exempt item that can be sold for a substantial profit to the bankruptcy estate.
As owner of your property, you are entitled to give an opinion regarding its value. It is important not to under-value or over-value your household property, but instead give a fair and reasonable estimate. If you own an expensive household, do some research and speak to your bankruptcy attorney. There are many ways to protect property in bankruptcy and your bankruptcy attorney can help you decide on the best course of action.