Wedding Rings and Engagement Rings in Bankruptcy

Posted by Wesley Scott on December 15, 2021 at 7:30 AM
Wesley Scott

shutterstock_1829555057When a person files for bankruptcy, their property is considered either exempt, meaning protected from creditors under the law, or non-exempt, meaning not protected from creditors. In a chapter 7 bankruptcy case, the debtor is required to give any non-exempt property they have to the trustee to be used to pay creditors, or enter into an agreement with the trustee, wherein they agree to pay the trustee to keep the non-exempt property. In a chapter 13 case, in which the debtor makes payments towards their debts in a 3 to 5 repayment plan, the debtor gets to keep their nonexempt property but must pay to their unsecured creditors at least as much as the creditors would have received had the debtor hypothetically filed a chapter 7 case.

Wedding and engagement rings can be very valuable both in terms of how much money they are worth as well as in terms of their sentimental value. For this reason, there are specific provisions (exemptions) in both the Federal Bankruptcy Code, as well as under Minnesota State law, which exempt, and protect, wedding and engagement rings up to a certain value. In Minnesota, debtors can choose whether to use the Federal Bankruptcy Code or Minnesota law to exempt their property.  

The Federal Bankruptcy Code provides a specific “jewelry” exemption of up to $1,700.  This includes any and all jewelry, including wedding rings, engagement rings and costume jewelry.  In the event that the debtor’s total jewelry exceeds this amount, the debtor is very often still able to completely exempt their jewelry under something known as the “wild card” exemption. This exemption can be used to protect any property of the debtor’s that is not specifically protected by any other specified category of exemption. The amount of this exemption is a bit tricky to calculate, but essentially, the less equity a debtor has in their homestead property, the greater the amount of wild card exemption that’s available, with the maximum amount of available wild card exemption being $13,900. Many debtors who file bankruptcy using the Federal Bankruptcy Code exemptions have little to no equity in their homestead, and thus, often have thousands of dollars available to protect their jewelry and other property.  

When a debtor files for bankruptcy under the exemptions provided by Minnesota law, it is typically for the reason that they have a lot of equity in their homestead. This is because the Minnesota homestead exemption is much more generous than the Federal Bankruptcy Code homestead exemption, with the Minnesota homestead exemption protecting up to $450,000 in equity, while the Federal homestead exemption provides only up to $25,150 of protection of the equity in the homestead. The downside to the Minnesota exemptions are that they do not provide for a wild card exemption. Furthermore, there was no specific exemption for jewelry (other than a watch) up until the State Statutes were amended a few years ago. The amended Statutes provides that “wedding rings or other religious or culturally recognized symbols of marriage exchanged between the debtor and spouse at the time of marriage and in the debtor’s possession” are exempt and protected up to a value of $3,062.50.  However, it must be pointed out that this exemption applies only to wedding rings and not engagement rings or any other jewelry not associated with the ceremony of marriage.  The fact that the debtor and their fiancé intend to exchange the engagement rings at the wedding ceremony does not change the fact that they are engagement rings, and not protected wedding rings. According to the Court, engagement rings are considered “gifts” conditional upon the marriage actually taking place. Based on this rationale, the Court has ruled that when a debtor has an engagement ring when they file for bankruptcy, but then calls off the wedding, the ring is not considered property of the debtor for bankruptcy purposes.

CALL NOW FOR A FREE STRATEGY SESSION FROM A MN BANKRUPTCY LAWYER AT LIFEBACK LAW FIRM

If you are considering filing for bankruptcy, you should speak to an experienced bankruptcy attorney so they may help you determine how best to exempt and protect as much of your property, as possible, in your bankruptcy case, including your jewelry.  See us at LifeBackLaw.com!

 

 

 

 

Topics: Engagement Rings in Bankruptcy

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