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Trustees requiring valuations on Clean Sweep sales

For some time now the Chapter 7 trustees in the Rochester Bankruptcy Court have been encouraged, by the Court, the United States Trustee and by their own pecuniary interests, to administer miscellaneous marginal unexempt assets in asset cases. For example, if a debtor is turning over unexempt tax refunds, the trustee will also request (or demand, depending on how you want to phrase it) an offer on, say, the debtor's unexempt computer, collection of CD's, and hunting rifle. This practice is known as "clean sweep", where assets which by themselves would not warrant administering a case are swept up and administered in cases with larger assets. Trustees liked clean sweep sales, as it added to their commission. Trustees receive 25% of the first $5,000 in assets collected. If a trustee sells unexempt equity in a car back to the debtor for $3,000, the trustee gets a $750 commission. If the trustee can add another $600 in a "clean sweep" sale, that adds another $150 to the commission for very little additional work.

Very recently, though, trustees have been requiring some sort of valuation on these "clean sweep" assets before they would process a purchase offer proposal from the debtor. Since many of these "clean sweep" assets are basically junk, valuing them is expensive, time-consuming and often problematic. These are not the kind of assets usually sold on-line, and appraisals could run $200, more than the assets are worth.

My understanding is that the Office of the U.S. Trustee has been requiring trustees to obtain these valuations, rather than relying on the trustee's business judgment. It is understandable that a valuation of some sort is needed for big ticket items, like a car or snowmobile, but how do you value stuff that would be difficult to sell in a garage sale?

One piece of information that may be helpful would be to include the year and amount of the original purchase in the Schedule B asset description. For example, "Dell Computer" valued at $200 doesn't say much, but "Dell Computer, bought 2005 for $900" would provide information that might substantiate a current $200 value. An asset description that says "14k ring" doesn't tell you much, but "14k ring, bought 2005 for $5,000" tells you a lot.

Another approach would be for the trustee to offer the asset for sale in an on-line auction, such as eBay or For example, say a debtor offers to repurchase from the trustee a computer, 10 CD's and a DVD player for $500. If the trustee put the proposed sale on hold and offered those items for sale in an online auction, with a minimum sale price of $500, and no one bid higher, then the $500 value might be substantiated on the basis that the items were exposed to the market and no higher offer was forthcoming.

I had a situation like that when I was a trustee, and a bankruptcy business owned a customer list. Another business offered me $25,000 for the list, and I served a notice of sale. My position was that this asset was so idiosyncratic that it could not be appraised. Another party objected to the sale and the judge upheld the objection on the basis that the asset was not exposed to the market. I then put the asset on an online auction, even advertising the sale in a newspaper located in the community where similar businesses operated, with a minimum bid of $25,000. When I had no counter-offers, the judge then approved my original sale.

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Peter R. Scribner, Esq.
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