All of the debtor’s property must be identified and valued during a Chapter 7 bankruptcy. Schedule B of the bankruptcy schedules specifically requests information of any “collections or collectibles.” The bankruptcy trustee examines the debtor’s property and exemptions to determine whether non-exempt equity exists that can be paid to unsecured creditors. Whether a debtor will lose collectibles during a Chapter 7 bankruptcy depends upon several factors.
First, it is critical that the debtor list all of his or her property, including collectibles. Failure to list property may result in losing the ability to protect the property, denial of bankruptcy discharge, or criminal charges for bankruptcy fraud.
Second, the value of the property could mean the difference between keeping and losing it. It is important to estimate an accurate value of the collectibles. The bankruptcy trustee likely knows little or nothing about the collection or its condition, and will initially rely on the debtor to give a good faith estimate of its worth. The value of the collection should be a “quick sale value,” which is akin to what other similar items in the same condition are selling for in a “quick sale” marketplace like an auction or eBay.
Some collections have sentimental value, but are essentially worthless. A recent article entitled 5 Completely Worthless Collectibles, author Jason Notte points out that collectibles like Beanie Babies, Franklin Mint Collectibles, and Precious Moments Figurines have poor resale value. On the other hand, gold and gun collections have good resale value.
Third, once the debtor has estimated the quick sale value of the collection, the debtor’s attorney can apply available legal exemptions to protect the property. Legal exemptions may be available from state or federal law and can protect the collection from creditors or the bankruptcy trustee.
Fourth, if the debtor’s legal exemptions cannot protect the entire collection, and the trustee has asked for turn over of the non-exempt property, the debtor can negotiate with the trustee to purchase the non-exempt equity. Trustees are usually receptive to offers from the debtor to buy property because it saves the trustee time and expenses.
Fifth, consider a Chapter 13. The debtor does not lose any property in a Chapter 13 bankruptcy. However, the debtor must pay unsecured creditors an amount equal to the sum of the non-exempt equity over the course of the repayment period (three to five years).
If you are considering bankruptcy and are worried about your collectibles, speak with an experienced bankruptcy attorney and discuss your options. Your attorney can present you with options including protecting your collection and liquidating the collection before filing bankruptcy.