CBS Asset Valuation & Exemptions 2 — Questions and Answers
Question 1: Under the 'replacement value' standard established in Associates Commercial Corp. v. Rash, how is secured creditor collateral valued in a Chapter 13 plan?
- At the price the debtor would pay to replace the property (Correct answer)
- At the liquidation value the creditor would receive at auction
- At the original purchase price minus depreciation
- At the appraised fair market value for third-party sales
Correct answer: At the price the debtor would pay to replace the property
Rash held that replacement value—what the debtor would pay to obtain the property—applies when the debtor retains collateral under a cram-down plan.
Question 2: A debtor claims a homestead exemption on a property titled solely in the non-filing spouse's name. Under most state laws, what is the likely outcome?
- The exemption is denied because the debtor has no ownership interest (Correct answer)
- The exemption is allowed because marital use satisfies residency
- The exemption is prorated between spouses
- The exemption applies only to the debtor's equitable interest
Correct answer: The exemption is denied because the debtor has no ownership interest
Homestead exemptions generally require the debtor to hold a legal or equitable ownership interest; title in a non-filing spouse's name alone typically defeats the claim.
Question 3: Which bankruptcy Code section specifically caps the homestead exemption that can be claimed if the debtor acquired the home within 1,215 days before filing?
- 11 U.S.C. § 522(p) (Correct answer)
- 11 U.S.C. § 522(o)
- 11 U.S.C. § 522(q)
- 11 U.S.C. § 522(d)(1)
Correct answer: 11 U.S.C. § 522(p)
Section 522(p) limits the homestead exemption to approximately $189,050 (adjusted periodically) for equity acquired within 1,215 days of filing.
Question 4: A debtor owns a term life insurance policy with no cash surrender value. How is this asset treated for bankruptcy estate purposes?
- It is not property of the estate because it has no present monetary value (Correct answer)
- It is property of the estate valued at the face death benefit
- It is excluded from the estate as a future interest
- It is property of the estate valued at replacement cost of a new policy
Correct answer: It is not property of the estate because it has no present monetary value
A term life policy with no cash value generates no estate asset because the estate cannot realize value from it.
Question 5: Under 11 U.S.C. § 522(f), a debtor may avoid a judicial lien on exempt property if the lien impairs the exemption. Which formula determines impairment?
- Lien + all other liens + exemption amount exceeds the property's value (Correct answer)
- Lien amount exceeds the property's fair market value
- Lien was recorded after the exemption was claimed
- Lien holder failed to file a proof of claim
Correct answer: Lien + all other liens + exemption amount exceeds the property's value
Impairment exists when the sum of the judicial lien, other liens, and the applicable exemption amount exceeds the property's value.
Question 6: A debtor converts a Chapter 7 to Chapter 13 after the trustee objects to an exemption. What is the effect on exemption rights?
- Exemptions are re-determined as of the Chapter 13 petition date
- The Chapter 7 trustee's objection carries over and binds the Chapter 13 case
- The debtor may re-elect exemptions under the converted chapter's rules (Correct answer)
- Exemptions are frozen at the values established in the Chapter 7 case
Correct answer: The debtor may re-elect exemptions under the converted chapter's rules
Upon conversion, the debtor may re-elect exemptions applicable to the new chapter, and exemption determinations are made anew.
Question 7: Which valuation method is most appropriate for a debtor's closely-held business interest when the business is a going concern?
- Income capitalization or discounted cash flow analysis (Correct answer)
- Liquidation value of tangible assets only
- Book value per the most recent tax return
- Replacement cost of all fixed assets
Correct answer: Income capitalization or discounted cash flow analysis
Going-concern value of a closely-held business is best captured by income-based approaches such as capitalized earnings or DCF.
CBS Asset Valuation & Exemptions 2
Under the 'replacement value' standard established in Associates Commercial Corp. v.
Rash, how is secured creditor collateral valued in a Chapter 13 plan?