Surrender Unencumbered Assets to Trustee

[gfounds]

I have what appears to be a novel question. Can a debtor, dissatisfied with an unrealistic valuation of an unencumbered asset, simply turn over that asset to a chapter 13 trustee and then file an amended plan without that asset?

[Jman30]

I have what appears to be a novel question. Can a debtor, dissatisfied with an unrealistic valuation of an unencumbered asset, simply turn over that asset to a chapter 13 trustee and then file an amended plan without that asset?

Are you saying, for example, you are not satisfied with the valuation of your car. So you turn the car over the Trustee to sell and pay off the loan and then amend the plan to not include the car??

[gfounds]

Not exactly. I am talking about an asset against which there is no security interest or lien. For example, a small minority interest of stock in a family corporation, or perhaps a collectibel that the trustee values at an unrealistic amount. In such a situation, the liquidation test might say that you have assets worth $50,000 available to pay creditors, when, in reality, it's more like $7,000. Can the debtor then surrender to the trustee that collectible or that stock and then file an amended plan?

[Jman30]

Not exactly. I am talking about an asset against which there is no security interest or lien. For example, a small minority interest of stock in a family corporation, or perhaps a collectibel that the trustee values at an unrealistic amount. In such a situation, the liquidation test might say that you have assets worth $50,000 available to pay creditors, when, in reality, it's more like $7,000. Can the debtor then surrender to the trustee that collectible or that stock and then file an amended plan?

This is a good question and maybe I am missing the point here. But in a Chapter 13, why would the trustee even be placing a value on something like a collectible?? The Trustee should only be looking at your DEBT and your INCOME and your ability to make a Chapter 13 payment. I can see maybe stock, if that is part of your net worth.....if you can't readily sell that stock to pay off debt, I don't think it would even count. Might be a good question for an attorney.

Sorry if this is not much help!! Maybe some of the other experts on this board can help?

[gfounds]

Thanks for the responses. Just FYI. The "liquidation test" provides that under a 13, the debtor must provide a plan with payments that total at least as much as what the trustee could expect to obtain in a Chapter 7 liquidation. THus, if the debtor, in theory, has NONEXEMPT assets worth $50,000, the plan payments must equal at least $50,000. Thanks again.

[Jman30]

Is this part of the new Bankruptcy rules??

[gfounds]

No, it has always been a rule. In the case of 13s in which a debtor wants to keep larger, non-exempt assets, it sometimes becomes important. However, it usually is not an issue, since most 13's are basically "no-asset" cases.

[StaciMM]

It has been the standard. In a ch. 13, unsecured creditors must get at least as much as they would have in a ch. 7. Mainly applies to when someone is trying to protect non-exempt assets. If you have $50,000 home equity and can only exempt $20,000, for example, and were able to do a ch. 7 based on income/expenses, etc. then the house would be sold & proceeds paid to unsecured creditors. At least that much needs to go to them in a ch. 13.

If your assets are overvalued, it can cause a problem. Consider this:

You have $40,000 in non-exempt assets. Your plan would need to pay at least $40,000 plus attorneys fees (if in the plan), plus trustee % fee, plus any other priority debts (like past due mortgage, IRS, etc.). If you only have $600/mo in disposable income to pay into the plan, you'll pay a total of $36,000 so can't do a ch. 13 & keep your non-exempt assets. If in reality the assets are only worth $10,000, you'd be fine as long as the difference in what you pay in (60 x $600, less the $10,000) would be enough for everything else.

To answer the original question-you should be able to surrender those assets to the trustee. Discuss w/ your attorney of course!

[Jman30]

Yeah, mine was a no-asset case, so I guess that is why I never came across this issue. Learn something new every day!

[StaciMM]

I guess there are 3 (main) situations where someone files ch. 13 rather than a 7:

#1... Behind on house/cars and filing can put the past due balance into the plan

#2... Have excessive equity that in items that would be lost in a ch. 7

#3... Simply too much disposable income to file a 7, but can't get a handle on their debts on their own.

Yeah, mine was a no-asset case, so I guess that is why I never came across this issue. Learn something new every day!