“The bankruptcy trustee will sell all your jewelry” isn’t an accurate statement about what happens when you file bankruptcy.
Over the last few months, I’ve had a couple of clients with jewelry they valued at fairly high amounts or were uncertain about. Because of this, I referred them to a local Summerville jewelry store to get the jewelry appraised.
There are two reasons for getting jewelry appraised: (1) As I’ve said over and over, your schedules must be accurate, and (2) I want my clients to have realistic expectations about what to expect in their bankruptcies.
However, both of these clients were also given legal advice by the jeweler. The advice was this: “The bankruptcy trustee will sell your jewelry!” This totally inaccurate legal advice from the jeweler caused my clients to panic.
In the vast majority of case the trustee will NOT sell your jewelry
Every case is unique. But in practicing bankruptcy law for 16 years, I’ve never had a trustee sell a client’s jewelry.
You get exemptions in property–allowances which permit you to keep a certain amount of property
Under South Carolina law, each debtor is allowed an exemption of $1075 in jewelry. “That’s not much,” you say. True, but you also have a “wild card” exemption of $5,350 per debtor. That means that if it’s a joint filing, each spouse gets a set of exemptions. Between the jewelry exemption and the wild card exemption, each debtor can exempt $6,425 in jewelry–assuming the wild card doesn’t need to be used for other property.
But I have some really nice jewelry!
Good for you, but it probably still won’t be a problem. Trustees want property they can turn into cash–the easiest assets to do that with are bank accounts, CDs, stocks, bonds, and other liquid assets. Jewelry is like fiber in your diet; it’s hard to digest. It takes work, time, and hassle. And it’s used. People buying used jewelry want a deal–a really good deal. This means if you buy a $15,000 diamond ring, the trustee will likely only get about a third of that amount if he tries to sell it. If you can exempt $6,425, and the trustee will get less than that if he sold it, why would he sell it?
And what if he can get more?
Let’s say he can. Maybe he can get $9,000 for your ring. To sell it, he must pay you your $6,425 exemption! Is he going to go to the trouble of administering an estate for $2,500? Maybe. But you could also “buy” the non-exempt equity by paying the trustee the $2,575–or even less if you negotiate that figure down a bit. Most trustees will give you six months or so to pay that amount.
All this means one thing in the vast majority of cases, your jewelry is not an issue. And if it is, keep in mind that there is no law allowing you to keep absolutely everything you have while giving your creditors nothing and discharging you debts. Have some perspective here. If you will be discharging $300,000 of debt, why complain about having to surrender some property to do it?
And Chapter 13 is another matter altogether
The second client who contacted me in a panic because of the local jeweler’s bad legal advice (think of that–a jeweler giving legal advice!) was about to file Chapter 13. Chapter 7 is a liquidation bankruptcy. That means the trustee sells non-exempt property to pay creditors. But Chapter 13 is a “payment plan” bankruptcy. Chapter 13 trustees do not sell property! Asset and exemptions matter, because if you have non-exempt property (think “too much stuff”) you must pay more into your plan. But as long as you do that over the life of your plan–usually five years, the bankruptcy court will confirm your plan. And if are paying your creditors 100% (as my client is in this second case!) you can own the Hope Diamond and it won’t cause a problem! Why? Because you are paying your creditors everything you owe them! No harm, no foul.
The bottom line
Don’t panic if you have jewelry. It’s highly unlikely that you’ll have to surrender it in your bankruptcy or will have to pay the trustee for the non-exempt equity. Of course, you could be the first client I’ve had in 16 years who’ll be the unlucky one! But I doubt it.
The other moral of the story is this: don’t listen to legal advice being dispensed by your jeweler! They know as much about bankruptcy law as I know about jewelry: nothing.
Postscript: Arizona bankruptcy attorney Joseph C. McDaniel has a great video post on Chapter 7 bankruptcy liquidation entitled, “A Chapter 7 Liquidation Normally Liquidates…Nothing!” Click here to watch the video. It drives home the point I made above. Most Chapter 7 debtors don’t own enough non-exempt property for the trustee to sell that property–and that goes for jewelry as well.