- Chapter 7 Bankruptcy: Asset Liquidation and Protection Mechanisms
- Antique and Collectibles Valuation for Chapter 7 Bankruptcy
- Selling or Transferring Antiques or Collectibles Prior to Chapter 7 Filing
- Consequence of Pre-Chapter 7 Antiques or Collectibles Sale and Other Options
- Antiques and Collectibles in Michigan Bankruptcy: The Bottom Line
The possession of valuable antiques or collectibles will complicate a Chapter 7 bankruptcy proceeding.
Does this mean that you should sell them before filing for Chapter 7 bankruptcy?
This is generally a terrible idea. However, with the assistance of an experienced Michigan bankruptcy attorney, the complications that will arise from pre-Chapter 7 property sales or transfers can be mitigated.
This Article will discuss:
- Antique and collectible valuation for bankruptcy purposes;
- Why valuable assets complicate a Michigan Chapter 7 bankruptcy case;
- The consequences of selling or transferring antiques or collectibles before filing for Chapter 7 bankruptcy;
- Other options for dealing with antiques and collectibles when a Chapter 7 bankruptcy filing may be necessary.
First, some basic information regarding the “liquidation” aspects of Chapter 7 bankruptcy will be discussed.
Chapter 7 Bankruptcy: Asset Liquidation and Protection Mechanisms
Chapter 7 is a form of bankruptcy in which, upon successful receipt of a discharge, you are not required to repay any of the debt you owe to you creditors. While there are a few exceptions to this possible outcome, it is generally a complete form of debt relief that will truly move you forward toward a fresh start in life.
However, there is, in some cases, a price to paid for the benefit offered by a Michigan Chapter 7 bankruptcy.
Chapter 7 is known as a “liquidation” bankruptcy. This is true, on one hand, because your debts are truly “liquidated.” More accurately, however, it is true because the process does contain a mechanism by which creditors are, in some cases, repaid through the liquidation of your antiques, collectibles, or other valuable assets.
When you file for Chapter 7 bankruptcy, you automatically create something called the “Bankruptcy Estate.” The Bankruptcy Estate is a legal construct which, by default, houses all property that you own, alone or jointly (to the extent of your partial ownership), all property you are entitled to receive, all property you may be entitled to receive by way of inheritance or a legal claim (even if not certain to be received).
This includes material property such as real estate and, yes, antiques and collectibles, but it also includes wages and commissions earned but unpaid, the right to sue someone for money damages, and, as noted, the right to receive an inheritance or to collect on a debt.
All of your property of any sort and wherever on Earth or elsewhere that it happens to be located must be listed in your bankruptcy petition “schedules” with an associated fair market value.
Any property listed (and especially any property that is not listed) is subject to seizure and liquidation by someone known as the Chapter 7 Trustee.
The Chapter 7 Trustee’s job is to seize assets—where possible—and to liquidate (sell) them in order to generate a pool of funds from which your creditors may be paid, fully or partially. The Chapter 7 Trustee is the Trustee of the Bankruptcy Estate. Any assets in the Bankruptcy Estate may be seized and liquidated by the Chapter 7 Trustee, in other words.
Most people who file Chapter 7 bankruptcy in Detroit, however, do not lose any property to the Chapter 7 Trustee. This is because the US Bankruptcy Code provides some protection for your assets. At least those assets of “normal” value.
These protections are known as “Exemptions.” They are statutory allowances, providing that certain types of property up to certain dollar value limits may be removed from the Bankruptcy Estate.
If an antique, collectible, or other asset has been fully exempted (up to its full value), it has essentially been totally removed from the Bankruptcy Estate, leaving the Chapter 7 Trustee with no jurisdiction under which to seize it.
A fully exempted asset is protected from liquidation in Chapter 7 bankruptcy.
The available Exemptions are fairly robust. Most Chapter 7 debtors in Michigan are able to fully exempt and protect all of their property in most cases. These debtors are able to obtain a discharge of all of their (dischargeable) debt for only the cost of the US Bankruptcy Court’s filing fee and the attorney fee charged by the debtor’s Michigan bankruptcy attorney.
However, not every type of asset or property has an Exemption available to protect it. Some types of property were not intended by the US Congress (which drafted the US Bankruptcy Code) to be protectible in Chapter 7.
Among these types of non-exemptible assets are antiques and other collectibles.
Antique and Collectibles Valuation for Chapter 7 Bankruptcy
Obtaining the proper “fair-market” value for any asset is vital in the Chapter 7 bankruptcy process. Even for assets like antiques and collectibles that have no particular Exemption available with which to protect them, there remains hope of protection.
The US Bankruptcy Code contains an available Exemption known as the “Wildcard” Exemption. This Exemption is of variable value depending upon the amount of home equity you need to protect (we won’t explain why here). It may be that, in your particular case, you will have no available Wildcard Exemption available at all, depending.
If you do, however, you can use the Wildcard Exemption to protect any type of property—including antiques and collectibles.
But there will be a maximum available amount of Wildcard. And, if you have none, proper valuation of your antiques and collectibles is still required by law, under penalty of perjury, to obtain your eventual Chapter 7 discharge.
Further, however, more information is better than less information for your bankruptcy lawyer. A good valuation will enable your bankruptcy attorney to analyze your situation fully and present the best possible recommendations for your Chapter 7 proceeding—including the possible recommendation that you not file Chapter 7 at all.
What is a good valuation for antiques and collectibles for Chapter 7 purposes?
One easy valuation method is to look for similar antiques and collectibles for sale on Ebay or other online auction or e-commerce platforms. (Or, if it is a high-end antique or collectible or it is original art of some noteworthy sort, perhaps the Sotheby’s or other international auction website.)
Another “cheap” valuation method is to take the item to a pawnbroker and find out how much you’d get if you pawned the item.
None of these are ideal or “real” valuation methods.
The Chapter 7 Trustee will not sell your property on Ebay or pawn it. The Chapter 7 Trustee will put it up for auction or sell it through an appropriate channel for that type of antique or collectible—and to the right potential buyers.
A good valuation method—the only good valuation method—for valuable antiques and jewelry is a written appraisal by a reputable antiques appraiser, dealer, or other professional in the customary and routine business of providing such appraisers. The more skilled, the more practiced, the more reputable, the better.
You need documentation supporting the value you put on paper in your bankruptcy petition in a Chapter 7 because, unless you are just surrendering the property without a fight, you’ll end up using in court.
And you’ll need that appraiser to appear as an expert witness, potentially, to defend and support his or her appraisal and valuation of your antique or collectible.
Selling or Transferring Antiques or Collectibles Prior to Chapter 7 Filing
So should just sell the antique or collectible prior to filing Chapter 7? Or transfer or gift it to a friend or family member?
This will not remove the complication presented by the asset in your subsequent Chapter 7 proceeding, alas.
A Chapter 7 Trustee has the ability and authority not only to seize and liquidate assets in your present possession but also those you’ve sold or transferred prior to filing Chapter 7, under a great many circumstances.
These pre-filing actions will not result in a smoother Chapter 7 process for you in particular:
- Simply gifting the antique or collectible to a friend or family member. (This is a fraudulent transfer.)
- Selling the property to a friend or a family member for $1 or some other sub-value amount.
- Hiding the property and simply not disclosing its existence at all. (Go straight to jail, do not collect $200!)
If you were to sell the antique or collectible prior to the filing of a Chapter 7 bankruptcy, it would need to be done in a manner specifically recommended by an experienced Michigan bankruptcy attorney.
The entire transaction and all of its details would need to be well-documented, including the identity of the buyer and any personal relationship you may have with him or her (or it, if a corporate entity). All of this information will have to be turned over to the Chapter 7 Trustee, who is empowered to avoid or unwind the transaction with any sniff of impropriety or fraud.
The funds received from the sale would need to be either maintained for turnover, exempted to the extent of any available Wildcard Exemption, and/or converted or expended on a property Exemptible asset.
None of which should be attempted without the advice of an experienced bankruptcy lawyer.
Consequence of Pre-Chapter 7 Antiques or Collectibles Sale and Other Options
As noted, the consequences of improperly selling or transferring antiques or collectibles of value prior to the filing of Chapter 7 bankruptcy include:
- Unwinding the transfer to reclaim the property or its value from the recipient of the asset;
- Denial of your discharge;
- Federal felony criminal charges for Bankruptcy Fraud.
So what are your options if you need the benefit of bankruptcy but possess valuable antiques or collectibles that you would prefer to keep?
One option is to file Chapter 13 bankruptcy instead.
In a Chapter 13 bankruptcy, no assets are ever liquidated. No one will take your antiques or collectibles from you! However, you will repay some of what you owe to your creditors by way of monthly payments to the Chapter 13 Trustee for a period of 3-5 years. (Thus, when considering this option, you should ask yourself how much the antique or collectible is really worth to you!)
Another option is to proceed with the Chapter 7 bankruptcy. Doing so will require some pre-bankruptcy strategy (to the extent allowed under law and Michigan’s Rules of Ethical Conduct for attorneys only) or the ability and willingness to settle the claim with the Chapter 7 Trustee.
Chapter 7 Trustees are obligated to negotiate with debtors for the value of property. It is less work for a Chapter 7 Trustee to come to a reasonable agreement with a debtor than to litigate one, and it ultimately costs your creditors less as the Trustee’s litigation expenses will be drawn from the funds ultimately received.
A Chapter 7 Trustee would rather take a check from you than your comic book collection or your Degas painting in nearly every circumstances. But you’ll need to actually have the ability—the money—to fulfill any settlement reached.
Finally, your further option is to avoid bankruptcy entirely and work with an experienced attorney to resolve your debt hardship through non-bankruptcy means.
Antiques and Collectibles in Michigan Bankruptcy: The Bottom Line
The bottom line is that you should never engage in “self-help” when it comes to Chapter 7 bankruptcy. Nothing in this post should be considered legal advice or a roadmap of any sort that is or isn’t applicable to your particular circumstances in reading this material.
Instead, if you are interested in Chapter 7 bankruptcy and own antiques, collectibles, or other valuable property of concern to you, schedule an initial consultation to speak privately with an experienced bankruptcy attorney.
Attorney Walter Metzen is a Board Certified Bankruptcy Expert who has successfully represented Chapter 7 and Chapter 13 clients in Metro Detroit for over 30 years.
Contact us now to discuss your bankruptcy options.