There is a quick and a not-so-quick answer to this question, depending upon whether you are filing Chapter 7 or Chapter 13 bankruptcy. The quick answer pertains to Chapter 13 bankrupties: if you are filing a Chapter 13 bankruptcy, the answer is YES, you will be able to keep you jewelry, no matter how valuable it is or much of it you have. The reason for this is that Chapter 13 bankruptcies are funded not through the liquidation of assets as Chapter 7 bankruptcies are but through the filing debtor’s income. Chapter 13 bankruptcies are payment-plans, essentially, and, throughout the 3-5 year life of the plan, the petitioning debtor makes a monthly payment according to the terms of the plan. It is that monthly payment that distributes “asset” to the debtors’ creditors, and the debtor’s property has nothing to do with it.
The not-so-quick answer pertains to Chapter 7 bankruptcies. A Chapter 7 bankruptcy is a complete liquidation of debt, not a reorganization as is a Chapter 13. Since all of a debtor’s debts are essentially erased through the Chapter 7 process, the creditors whose debts will be discharged by the bankruptcy are entitled to the proceeds of any of the debtor’s personal property that the court-appointed Trustee overseeing the Chapter 7 for the Bankruptcy Court is entitled to liquidate. That is to say, the extent to which creditors may have their debts satisfied is funded directly by the debtor’s personal property in a Chapter 7 and not by a monthly payment made from the debtor’s earned income as in a Chapter 13.
That being the case, the question for ANY property belonging to a debtor (jewelry or otherwise) is: “What property is the Trustee entitled to liquidate for those creditors?”
The Trustee may liquidate property that is, in short, not exempt from the “Bankruptcy Estate” that is created when the debtor files the bankruptcy petition. The Bankruptcy Estate is a legal estate much like a probate estate that is administered by a state court when someone passes away without a proper will having been written. In a probate matter, the state court determines the disposition of the deceased’s property. In a bankruptcy, the federal bankruptcy court, in the person of the trustee, determines the disposition on behalf of the creditors. Everything in the Bankruptcy Estate is able to be liquidated by the Trustee, and all of the debtor’s personal property and other assets are automatically part of the Estate—unless they are specifically, item by item, exempted from the Estate through the use of various exemptions that are provided in the Bankruptcy Code.
One of the more specific exemptions available in the Code is the exemption for a person’s jewelry.
The Federal exemption for jewelry is currently $1350.00. Jewelry that is higher in value than that amount may, in some cases, be covered by the “wildcard” exemption that is available to some debtors not utilizing their full homestead exemption. Otherwise, it may not be fully exempt and may be subject to liquidation by the Trustee.
The exemption for jewelry in Michigan, where I practice, is lower still: the Michigan exemptions (which be used instead of the Federal exemptions) provide for an exemption of just $3000.00 for ALL household goods, utensils, books, appliances, and jewelry—with the further provision that no one item be worth more than $450.00.
Therefore, the answer to the question of whether or not you may keep your jewelry in bankruptcy is, in a Chapter 7 bankruptcy, maybe. It depends upon the value of your jewelry and the availability of the “wildcard” exemption after the home you live in and all of your other personal property is taken into account and also whether or not you are using the Federal or state exemptions for your area. Further, when it comes to engagement rings and jewelry of particular sentimental value, the Trustees in your region may be lenient about liquidating the property even if not exempt, but this varies wildly by region and is best not to be counted upon.
If you have questions about the possibility of retaining your personal property through a Chapter 7 or a Chapter 13 bankruptcy, please contact me at jhilla@aronofflinnell.com or (248) 977-4182 to schedule a free, initial consultation.
