Can I Keep My Jewelry If I File For Bankruptcy? Probably---But What's It Worth?
Can I Keep My Jewelry If I File For Bankruptcy? Chapter 7 vs. Chapter 13 Bankruptcy
The question, "Can I keep my jewelry if I file for bankruptcy?" in this blog post is intended to stand for the same question as related to all property. Any property, from jewelry to lawn mowers to comic book collections to a debt that someone else owes you to a possible personal injury claim you may have because a neighbor's dog got loose and bit you, is all subject to potential "liquidation" (seizure and sale by the Chapter 7 bankruptcy Trustee for the benefit of your creditors) in Chapter 7 bankruptcy and can affect the amount of your monthly plan payment in a Chapter 13 bankruptcy. Note the difference in potential outcome between Chapter 7 bankruptcy and Chapter 13 bankruptcy there? Let's take a closer look at it. Can I Keep My Jewelry If I File For Bankruptcy? The Retention of Property in Chapter 13 Bankruptcy A quick, bottom-line answer to the question "Can I keep my jewelry if I file for bankruptcy?" is that, YES, if you file a Chapter 13 bankruptcy, you will be able to keep your jewelry and any other personal property that does not cost you money each month (i.e., a timeshare with high maintenance fees will be objected to by a Chapter 13 Trustee potentially, if you are paying less than 100% of what you owe to your creditors through your Chapter 13 payment plan). This is because Chapter 13 bankruptcies are "funded" not through the liquidation of assets as in Chapter 7 bankruptcies are but through the payments made by the filing debtor into the Chapter 13 plan monthly for 3-5 years. A Chapter 13 bankruptcy requires your, in essence, to pay back some of what you owe to your creditors, discharging the balance unpaid after the Chapter 13 is over entirely, the same as in a Chapter 7 bankruptcy in which you repay none of what you owe to your creditors. If you have property that would not be "protected" if you had filed a Chapter 7 bankruptcy (see below for more on "protection" of property), the "unprotected" value of that property may contribute to a need in a Chapter 13 bankruptcy to make a little higher plan payment each month than you might have. The underlying rule in Chapter 13 bankruptcy is that your unsecured creditors (credit cards, medical bills, personal loans, etc.) may not receive less from your Chapter 13 payment plan than they would have gotten if you had filed Chapter 7 and had some property seized and sold off by the Chapter 7 Trustee and the proceeds distributed to them. So, in a Chapter 13, if that would have been the case had you filed Chapter 7, you would have to make a monthly plan payment high enough to ensure that, at the end of the Chapter 13, the unsecured creditors, who are paid last after all other creditors and only at the end of your 3-5-year plan, have that amount of money available to be distributed to them by the Chapter 13 Trustee. So, if you had a ring worth $10,000 and your Michigan bankruptcy attorney could "protect" only $5,000 of its value, that would mean, in a Chapter 7, that the ring could be taken by the Chapter 7 Trustee (assuming you and your attorney did not work out a settlement with him or her) and sold, the "protected" $5,000 to be given back to you and the "unprotected" $5,000 to be distributed to your creditors (after the Trustee and his agents eat up most of the money with their own fees, naturally). In a Chapter 13 bankruptcy, no one would take that same ring from you---but there must be at least $5,000 sitting in the Chapter 13 Trustee's account for your unsecured creditors at the end of your Chapter 13 plan and your payment must be high enough to ensure that that happens in order for your plan to be approved ("confirmed") by the judge in your case. Can I Keep My Jewelry If I File For Bankruptcy? The Retention of Property in Chapter 7 Bankruptcy So to what extent can jewelry and other personal property be lost in a Chapter 7 bankruptcy? 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 Michigan state court when someone passes away without a proper will having been written. In a probate matter, the Michigan probate court or magistrate determines the disposition of the deceased person's property. In a bankruptcy, the Federal bankruptcy court, in the person of the Chapter 7 Trustee, determines the disposition on behalf of the creditors. Everything in the Bankruptcy Estate is subject to liquidation 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. "Exemptions" are the means by which your jewelry and other property is removed (exempted) from the Bankruptcy Estate. They are simply bits of either Michigan statute or Federal statute that allow cdertain types of property up to certain dollar-value amounts to be removed/exempted from the Bankruptcy Estate. There is a full set of Federal bankruptcy exemptions, but Michigan also has a set of exemptions available for use. Your bankruptcy attorney must, when drafting your petition, select either the Michigan exemptions or the Federal exemptions but may not pick and choose from among them. (Note that other states' laws provide for state law-based exemptions in relation to Federal exemptions in different ways. If you are reading this from a state outside of Michigan, consult an experienced bankruptcy attorney in your area.) 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. If the value of the jewelry or other property is not fully covered by the value of the exemption or exemptions applied to it on paper by your Michigan bankruptcy lawyer in your bankruptcy petition, the Chapter 7 Trustee may decide to take possession of it and sell it off in order to distribute proceeds to your creditors. The exemption for jewelry in Michigan is lower still: the Michigan 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 (fair-market value, or "garage sale" value, is used) in relation to the value of all of your other property that may require exemption as well, and also whether or not you are using the Federal or state exemptions for your area. If you are a Michigan resident and are considering filing for bankruptcy, please contact us at (866) 674-2317 or click the button below to schedule a free, initial consultation.