Indiana Bankruptcy Court Asks Creditors, “Why Do You Want to Know?”

October 7, 2012 1:28 pm Published by

I’ve been telling tales.  Today, I have another story from Consumer Bankruptcy News ( the journal which keeps me informed about court cases of  individual bankruptcy in Indiana and all across the country).  I chose this particular case because I’m hoping Bankruptcy in Indiana readers will realize an important rule in the bankruptcy process. Over my 25 years offering Indiana bankruptcy information, I’ve learned that consumers need help assigning a value to their assets on the bankruptcy paperwork.

A big part of our work in the five Zuckerberg bankruptcy law offices is analyzing what a client's property is worth, so that we can figure out whether there are sufficient available exemptions to protect it. This is a fairly complicated, but extremely important part of the process, but because I actually helped write the exemptions portion of the new bankruptcy laws of Indiana, we are uniquely qualified for this part of the work.  Of course, there are values – and then there are values, you might say. For purposes of applying "exemptions", we use "liquidation" value (as opposed to the listing value, or what the client paid for the property).

In the Massachusetts court case, the question was about the value of debtor Maryann L.’s home. Since she has filed the original personal bankruptcy petition, the home had depreciated in value, and now, as of the date her bankruptcy plan was confirmed, was worth less than the amount owed on the first mortgage.

The point here, as the Columbus bankruptcy attorney who works with me emphasized in our discussion, is that the mortgage holder was asking “What is the value of the home?” The court ruled that the answer depended on “Why do you want to know?” In other words, a valuation depends on the purpose and the main purpose here was approving Ms. L.’s bankruptcy plan.

The second issue that arose was whether Maryann could “strip off” the second and third mortgages as unsecured debts (which, as every good bankruptcy attorney in Indiana knows, are dischargeable in bankruptcy.) Since her home was now worth less than the amount owed on the first mortgage, M. could petition to have the two other mortgages discharged.

Two lessons here for Bankruptcy in Indiana readers:

  • Home equity loans can be discharged as part of bankruptcy, freeing up
  • The bankruptcy court ruled that the two second mortgages could be “stripped” and treated as dischargeable only if the home was worth less than the amount of the primary mortgage.

Why would you want to know? Timing can be everything when it comes to filing personal bankruptcy in Indiana!



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This post was written by Mark Zuckerberg

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