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Valuation in Bankruptcy Cases

Published June 11, 2013 by Sasser Law Firm

The strategy in valuing assets in bankruptcy can vary based on the circumstances. To determine the amount of a secured claim, fair market value is appropriate [e.g. NADA retail value for vehicles being stripped down]. However, in the context of the liquidation test in the reorganization chapters it seems appropriate to utilize wholesale valuations with deductions for items such as refurbishment and cost of sale. The reason is that those cost would have to be absorbed by a chapter 7 trustee in the event of liquidation that the test is attempting to replicate. The liquidation test sets a floor in the reorganization chapters for how much must be paid back to general unsecured claim holders in reorganization chapters such as 11 and 13. Because of the different reasons for valuation, it is possible that a asset could be assigned two different values within the context of the same case.

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