When a person files for bankruptcy, their property is considered exempt, protected from creditors under the law, or non-exempt, 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 included in the bankruptcy estate and 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.
Federal Bankruptcy Exemptions: A Safety Net for Jewelry
Wedding and engagement rings can be very valuable in terms of how much money they are worth and their sentimental value. For this reason, specific provisions (exemptions) in both the Federal Bankruptcy Code and Minnesota State law exempt and protect wedding and engagement rings up to a specific value. These exemptions fall under the general personal property exemption, which protects personal items such as jewelry, clothing, and furniture from being included in the bankruptcy estate. 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. If 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 that is not specifically protected by any other specified category of exemption.
Understanding the Federal Wildcard 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 personal 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.
Minnesota State Exemptions: Protecting Wedding Rings
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. In a joint bankruptcy case, the exemption amount for personal property, including jewelry, can be doubled if the filer is married. 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.
Practical Tips for Protecting Your Jewelry with Bankruptcy Protection
If you’re concerned about your jewelry in bankruptcy, consider these practical steps:
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Get an Appraisal: Accurately assess the value of your jewelry before filing. This will help you determine if it falls within the exemption limits and if additional steps are needed.
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Keep Good Records: Maintain receipts, appraisals, and any documentation related to your jewelry’s ownership and value.
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Consult an Attorney: Discuss your specific situation with a bankruptcy lawyer. They can advise you on the best course of action to maximize protection for your cherished jewelry.
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Seek Bankruptcy Protection: Consult a bankruptcy attorney to understand how filing for bankruptcy protection can impact your assets and help you protect your jewelry.
Alternatives for Non-Exempt Jewelry
If your jewelry exceeds the exemption limits, you’re not automatically forced to surrender it when filing bankruptcy. Here are a few potential options:
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Redemption: You may be able to buy back non-exempt jewelry from the bankruptcy trustee by paying its fair market value.
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Reaffirmation Agreement: You could enter into a reaffirmation agreement with a secured creditor to continue paying off a loan secured by the jewelry.
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Conversion to Chapter 13: If you have the means to make payments, switching to a Chapter 13 bankruptcy might allow you to keep non-exempt jewelry while repaying a portion of your debts.
Emotional Value vs. Financial Value: Making Informed Decisions
While jewelry often holds sentimental value, it’s crucial to weigh this against its financial value and potential impact on your bankruptcy case. Recent decisions by the bankruptcy court have confirmed that certain items, such as wedding rings, qualify as necessary wearing apparel and are therefore protected from the trustee’s reach. If a piece of jewelry is not exempt and significantly exceeds your state’s exemption limit, it might be wise to consider selling it before filing and using the proceeds to pay down debts or cover essential expenses. Prioritize your financial well-being and long-term goals when making these difficult decisions.
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 personal property, including your jewelry, as possible in your bankruptcy case. See us at LifeBackLaw.com!
