"100% Fair market value" - an interesting audio discussion

[bornfree2]

From a google websearch I found this discussion by a panel of BK experts from 2010 regarding the language and check box of "100% FMV up to any applicable statutory limit" on Form 106C: Exemptions


https://www.abi.org/educational-brie...b-v-reilly-and

http://abi-webinars.s3.amazonaws.com...wab_Reilly.mp3

supreme court case Shwab v Reilly

There are arguments from both sides, but my understanding was from debtor side

• checking that "100% FMV up to any applicable statutory limit" exists to preserve a debtors right to keep the property above and any increase in value after filing...up to the exemption limit
• for example, if debtor claims asset value to be worth $100 but after filing, trustee finds it can be sold for a lot more, the debtor reserves right to that increase in value up to the exemption limit....obviously useful when covered by a wildcard exemption

From trustee side, this creates a 'flag' to object to within the 30 days after 341 meeting. So basically debtor will call more attention to their case... and will have to object to the objection to exemption, etc. In short a headache$$$

I can see this affecting those with very volatile assets, as the value of that stuff dances up and down...and the trustee would naturally want to liquidate if it went 'to the moon' after filing.

My understanding is that marking it as 100% Fair market value, would at least give the debtor some of that upside profit since they are declaring its value to 100% of its new market value up to the exemption they applied ... like wildcards.

"magic words" like "100% FMV" and "unknown" are to be carefully used

I could be completely wrong in my understanding and im not a lawyer this not advice etc.

Thoughts?

[justbroke]

Prices are established at the time of filing (except for certain valuation hearings). If the property was 100% exempt at $100 at the time of filing, and the FMV at the time of filing was $100, then any increase in value belongs to the the debtor since it was exempt.

Otherwise, Trustee would just take everyone's home and wait for it to increase in value. This just doesn't happen. (In cases where the home is only partially exempt, the increase in value belongs to the estate if the Trustee is going to administer the home/asset. There have been many cases argued around Trustees and the so-called carveout.)

In any case, and I repeat this for anyone reading, about 95% of Chapter 7 cases are no-asset and proceed through the system without even a blip. The small 5% of Chapter 7 cases that have assets to administer, or something was missed but it still makes it an asset case, there are valuations to consider.

Since Chapter 7s are done by panel trustees (lawyers and CPAs that are empaneled by the United States Trustee to oversee Chapter 7 cases), it's hard to gauge. Each individual Chapter 7 Panel Trustee, and there are thousands of them, has their particular process. For example, there's a notorious Chapter 7 Panel Trustee (an individual, not the lot of them), that sends an appraiser to the home whenever someone claims the homestead exemption. It's just their process to checking the list.

I won't get into it, but there are reasons why Chapter 7 Panel Trustees don't just go on fishing expeditions. The major reason is that the only get about $70 per case, unless they find something to administer and earn a commission. Sending an appraiser costs a LOT MORE than $70.

[bornfree2]

Prices are established at the time of filing (except for certain valuation hearings). If the property was 100% exempt at $100 at the time of filing, and the FMV at the time of filing was $100, then any increase in value belongs to the the debtor since it was exempt.

The more interesting assets in this discussion are the volatile ones. consider a penny stock or crypto that dances WILDLY in value in mere minutes. Very simple to appraise that value post filing and claim it if it shoots up during bull market.

Though debtor may be entitled to 'fair market value', how much of it will it eat up the other assets that try to be covered with an exemption. Thats why the supreme court paper discuss that debtor needs to assign FMV AND a dollar amount for the exemption claimed. So you can basically cap that asset to so it doesnt eating up all your wildcard.

I won't get into it, but there are reasons why Chapter 7 Panel Trustees don't just go on fishing expeditions. The major reason is that the only get about $70 per case, unless they find something to administer and earn a commission. Sending an appraiser costs a LOT MORE than $70.

From my experience in state litigation, litigation and filing is largely automated. What can take a pro se several weeks to research and write up, lawyer firms have templates already made with all POA and electronic submissions to courts. Much like accountants. It really doesnt cost them anything other than the time to manage that software to do all the work.

One can be 'no-asset' yet try to exempt stuff that the trustee can object and intimidate with lawsuits to third parties for turn over. I remember reading from collier-handbook-for-trustees-and-debtors and its replete with form letters that give incredible amount of demanding powers from trustee to parties. (law library card ftw). So, in my opinion, $70 is not the budget they work with. The have leverage with these software tools. Electronic filing has made it much easier for opposition.

[justbroke]

As I wrote, a "smart" Chapter 7 Trustee is not going to speculate or deal with this. Especially for a debtor that has no property to speak of.

I know that I repeat myself, but it's worth repeating. The Chapter 7 Panel Trustee gets about $70 per case to review the schedules. That trustee -- that is not a newbie -- is not going to litigate to recover things and spend thousands of dollars to find out that it's worth ten cents. It just doesn't happen.

Bankrutpcy court can't be compared to state and local courts. It's a different system. It's designed to be streamlined. No Chapter 7 Panel Trustee in their right mind is going to worry about "highly volatile" assets because... well.. they are too volatile.

I'll give you an example, which hopefully allays your concerns. A trustee thought they could get money from a debtor's property over their claim of $30,000 exemption. The trustee demanded that the debtors move out from the property so that the trustee could sell the home. The trustee opined that an empty home is easier to sell. The court wrote that if the trustee wants to take the house, then they must pay the debtors $30,000 for them to move out. The trustee argued that the value of the home was not yet known and there may not be even $30,000 after the sale and commissions (to realtors, etc). The court disagreed and said that the debtor and the trustee had a type of "joint" tenancy and the trustee would have to buy out the debtor in order to force them to move. The trustee backed off.

You see, the trustee was speculating and that speculation would have cost them $30,000 and had it not panned out, they would have lost.

The Chapter 7 Panel Trustee is -- outside of being a professional attorney or public accountant -- an ordinary person. A smart (panel) trustee doesn't play these games. During the housing crisis in 2008-2012, some Florida Chapter 7 trustees found a way to make $10,000 for the creditors (with $2,500 going to the trustee). This was for people saying that they were going to surrender their property. The trustee would then negotiate with the lender to pass clear title to them, via the bankruptcy court, for a $10,000 carveout. Even if the property was underwater, the $10,000 is a lot cheaper than a multi-year foreclosure. But... this didn't cost the trustee a single penny to do! They didn't have to litigate... simply send an offer to the lender to pass clear title in lieu of foreclosure.

Very few trustees want to a.) operate a farm (some have), b.) operate a business (others have), c.) assume a lease (it could be profitable), and especially d.) speculate on "highly volatile" items.

So $70 is the number unless you're a young and ambitious newly minted Chapter 7 panel trustee. Those learn the hard way. Very very few made a name for themselves (see the carveout above). The data shows that the number is $70 and panel trustees are Leary to get into anything speculative. They want to know with some reasonable certainty that they won't waste REAL money.

Don't overread the Trustee's powers and what I trustee can do as the debtor. The trustee can only make demands for which they have the power. Some of it doesn't even affect the debtor, at all. (Example, clawing back property or money does not hurt the debtor at all.)

[bornfree2]

I'll give you an example, which hopefully allays your concerns. A trustee thought they could get money from a debtor's property over their claim of $30,000 exemption. The trustee demanded that the debtors move out from the property so that the trustee could sell the home. The trustee opined that an empty home is easier to sell. The court wrote that if the trustee wants to take the house, then they must pay the debtors $30,000 for them to move out. The trustee argued that the value of the home was not yet known and there may not be even $30,000 after the sale and commissions (to realtors, etc). The court disagreed and said that the debtor and the trustee had a type of "joint" tenancy and the trustee would have to buy out the debtor in order to force them to move. The trustee backed off.

You see, the trustee was speculating and that speculation would have cost them $30,000 and had it not panned out, they would have lost.

Probably because the debtor had representation and their house/living was at stake. For a pro se, a fat target is on their back for (in my opinion) extortion demands.

side note: Its sad but as im calling around for lawyers and when i challenge them on information ive learnt they take such contempt and treat me like an idiot. "You can believe everything you read on the internet..would you operate open heart with instructios online?" When im clearly quoting to them verbatim advice from a legal book or instructions from justice.gov on whatever issues we discuss. It seems they want to take your money, 'own' your case, then brush you aside when you want real attention. And i shoudl pay them for this kind of service??

("Its a big club and you aint in it -'They don’t want a population of citizens capable of critical thinking. They don’t want well informed, well educated people capable of critical thinking. They’re not interested in that. That doesn’t help them. That's against their interests.' - George Carlin")

That is why sadly i always return to the position of being Pro Se despite not wanting to. Its ME who has to live with their bad work. God willing, I knock on that right door and find that right lawyer for me that will fight for the little guy and not look at me as a sucker. Ugh

[justbroke]

Probably because the debtor had representation and their house/living was at stake. For a pro se, a fat target is on their back for (in my opinion) extortion demands.

Most people with property are HIGHLY encouraged to file with an attorney. If you're Pro Se you are expected to know your rights. And, this is not extortion at all... even if it's an opinion.

Pro Se's do not have any target on them. If you file Pro Se, you must know the procedures. Pro Se filers are in danger only because they don't know the rules, don't know how to apply exemptions, and don't know the law. Despite that, Chapter 7 Pro Se debtors still receive discharges at just about as high a rate as those done with an attorney. (We won't talk about Chapter 13s since those are complex and fewer than 50% of Chapter 13 Pro Se cases even make it to confirmation, and even fewer to a discharge.)

side note: Its sad but as im calling around for lawyers and when i challenge them on information ive learnt they take such contempt and treat me like an idiot. "You can believe everything you read on the internet..would you operate open heart with instructios online?"

Nope, you can't believe everything you read on the Internet. Nothing I say here should be taken as the law, it's not legal advice, and one should only consult with their own attorney... under retainer... who has been hired to represent you personally in the bankruptcy.

When im clearly quoting to them verbatim advice from a legal book or instructions from justice.gov on whatever issues we discuss. It seems they want to take your money, 'own' your case, then brush you aside when you want real attention. And i shoudl pay them for this kind of service??

I think that you want the Master Class on bankruptcy, and you will not be able to get this from any attorney. A friend of mine has a sign on their wall...

If you tried to do it on your own, a $1,000 surcharge applies.
If you tried to do it on your own, and messed up, a $2,000 surcharge applies.
If you want to watch us fix the issue, a $3,000 surcharge applies.
If you want us to teach you how to fix this, a $5,000 surcharge applies.

That is why sadly i always return to the position of being Pro Se despite not wanting to. Its ME who has to live with their bad work. God willing, I knock on that right door and find that right lawyer for me that will fight for the little guy and not look at me as a sucker. Ugh

The whole purpsoe to hire an attorney is to represent you. Bankruptcy is so structured with so much caselaw that 95% of Chapter 7 cases flow through without a single blip. In the 5% of cases, some of them have issues with exemptions and others may have issues with clawbacks. These 5% of cases are still handled relatively well and still discharge in 60 days (after the 341 Meeting), and are closed shortly after discharge. Only a very minor number of cases have significant issues that take months to handle... but the discharge still comes at the 60 days (after the 341 Meeting).

[bornfree2]

This is what a Trustee objection to exemptions claimed looks like. Seems debtor put "100% of FMV" on everything without specifying a statutory amount.

https://storage.courtlistener.com/re...61300.16.0.pdf

In my opinion and understanding, 100% of FMV needs to be coupled with a dollar value to their interests from the available exemption pool. This is what the Trustee is objecting to.



further reading:

• IN MATTER OF AYOBAMI, 879 F. 3d 152 - Court of Appeals, 5th Circuit 2018
• IN RE AYOBAMI, Bankr. Court, SD Texas 2016
• Schwab v. Reilly, 560 US 770 - Supreme Court 2010
• Consumer Bankruptcy Law and Practice Vol 1 (chap 10 - Exemptions) - excerpts

[justbroke]

That's why I wrote earlier that it would bring scrutiny. Remember that there are other soft limits within each band of exemptions. For example, in Florida we can exempt $1,000 of a single motor vehicle. We can't write "100% FMV" for the exemption because the equity may exceed $1,000.

Now, will every Trustee catch on and demand the exemptions be changed? Likely not. However, this is the problem with just putting maximum values to try to avert scrutiny.

[bornfree2]

That's why I wrote earlier that it would bring scrutiny. Remember that there are other soft limits within each band of exemptions. For example, in Florida we can exempt $1,000 of a single motor vehicle. We can't write "100% FMV" for the exemption because the equity may exceed $1,000.

Now, will every Trustee catch on and demand the exemptions be changed? Likely not. However, this is the problem with just putting maximum values to try to avert scrutiny.

yeah no doubt it will call attention, but what other options does Debtor have to have more confidence in not loosing valuable property. The car is actually the use case im thinking of here. If debtor claims the car exemption + wildcard, they can not be assured it will survive an attempt at auction.

Let say debtor has a beater car with bluebook $4k. The car exemption covers it. No problem they think. But in this inflationary environment used cars with good gas mileage may have irrational demand in the marketplace. Perhaps it could be auctioned for 10k. Sounds far fetched but it could happen. The car exemption+wildcard (without an amount claimed) is not enough to protect it if its called to auction. "100% of FMV" would cover that worry -- or at least provide a defense in advance.

Imagine getting a check for the car exemption (say $5k) and not being able to get as good a car as before. Or at all. That would not be a fresh start at all

[justbroke]

No options. If a debtor has significant non-exempt property, the debtor "should" provide a reasonable distribution to the creditors. It's that simple.

The goal was always a fresh start, and not a head start.

(Floridians have always suffered from our very poor car exemption of $1,000 for a single vehicle. It is still that amount today. All personal property must also fit in a $1,000 exemption unless you don't own a home. If you don't own a home, you get another $4,000 to try to cover everything. Certainly not trying to get anyone a "significant" start.)

[bornfree2]

Exemption planning is a bit like tax deductions. The tax code allows an individual/legal entity to arrange their activities in such as a way as to reduce taxable income with deductions of gross revenue. If you dont know about tax deductions you pay more taxes than you were legally entitled not to pay

Similarly, claiming exemptions is the method to legally claim property exempt from the default trustee estate. Whatever is left over, after objection, notice and hearing, is for distribution for creditors. This is what trustee 'should' do not the debtor. The things debtor 'shall' do is found in Debtor's duties in the Title 11 code 521 and Bk rules (and local court rules, rules of civil procedure, and rules of evidence, etc,etc).

Of course a good attorney 'should' advise debtor of these mechanisms to get maximum benefit so they keep as much property as they can for their new financial life. In the meantime, in between time, debtor 'should' self educate.

[bornfree2]

couldnt edit as past the time, but wanted to add:

edit: One very important thing a Debtor 'should' do is properly schedule the Creditor's claims of debt and list them in the mailing matrix. If omitted (e.g by mistake after filing or after 341) , debtor 'should' amend schedules and mailing matrix and provide effective notice to creditor so they have time to file proof of claim before bar date. Otherwise creditor could argue the debt is nondischargeable as they never received notice. Due process is for both creditor and debtor.

[justbroke]

Otherwise creditor could argue the debt is nondischargeable as they never received notice. Due process is for both creditor and debtor.

Except that in most districts, a Chapter 7 discharges all debt that arose before the filing regardless of whether it was listed or not. There is a caveat that it can't be an asset case which had a distribution. Many debtors have tried to re-open their no-asset Chapter 7 case to add a missing creditor only to be told what I wrote, and the re-opening being denied as a matter of law.

A smart creditor knows this for no-asset cases. A creditor that really questions the dischargeability of an item could re-open and file a motion to determine dischargeability, but that rarely rarely happens.

If it's an asset case, the debtor is out-of-luck since the creditor was unable to participate in the distribution. This is where understanding the underlying practice is important.

[bornfree2]

Yes thats correct and back on topic...the more exemptions are properly claimed, the more property debtor keeps, the more the case becomes no-asset...

[justbroke]

This is not a big issue. Approximately 96% of cases are no asset cases**. Those usually in bankruptcy are really deserving of a Chapter 7 bankruptcy discharge. That's is to say that this issue with assets and exempting assets is hardly a problem in 96% of all Chapter 7 cases.

It's the marginal 4% which become asset cases for one reason or another. You want to know an easy way to become an asset case? Just file your Chapter 7 bankruptcy in the latter part of the year. The Chapter 7 Trustees love these cases as they pounce upon any potential tax refund and claim it as property of the bankruptcy estate.

** Source: American Bankruptcy Institute