U.S. Supreme Court Ruling Addresses Appreciation Of Debtor’s Assets During Bankruptcy Case

No Comments » | Posted by Kiara Withers
Jul 22 2010

Debtor owns an appreciating asset- land, a business etc.- and files a Chapter 7 bankruptcy petition which assigns a low value to the asset which value is below the debtor’s exemption limits. The trustee does not challenge the value or the exemption within the trustee’s 30 day objection window. After the filing, and after the time for the trustee’s exemption challenge, the asset significantly increases in value. Is the debtor “home free”, or can the trustee go after the appreciated asset?

This issue was addressed by the U.S. Supreme Court in a cased decided in June. The Court held that the bankruptcy trustee could pursue an asset that appreciates after the petition filing. I read an excellent summary of this case in a blog post by Georgia bankruptcy attorney Jonathan Ginsberg. The post suggests that debtors with potentially appreciating assets might “claim an exemption for ‘full fair market value’ or 100% fair market value’”. This valuation might cover anticipated appreciation so that the trustee would have to appraise the asset and challenge the exemption within 30 days of the creditor meeting. On the other hand, using “fair market value” instead of a current number may invite attention to an asset that otherwise would pass through the bankruptcy even if it did appreciate after filing.

The best course of action will become clear after some cases apply the new Supreme Court ruling.

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