Whether you can keep jewelry, watches, and wedding rings in Alabama depends on what type of bankruptcy you file (Chapter 7 or Chapter 13), how much the jewelry or watch is worth, and whether the jewelry is a “necessary and proper” part of your normal wearing apparel.
Keeping Jewelry in Chapter 13 Bankruptcy in Alabama
In Chapter 13 bankruptcy, often called a reorganization bankruptcy, you enter into a repayment plan for three to five years. Your creditors get paid through the plan – some in full and some in part. Although a Chapter 13 plan requires a long commitment, the advantage is that you get to keep your property, including jewelry.
If you have very expensive jewelry however, that will probably affect how much you will be required to repay unsecured creditors.
Keeping Jewelry in Chapter 7 Bankruptcy in Alabama
Chapter 7 bankruptcy works differently. In Chapter 7, you must give up certain items of property. The bankruptcy trustee sells this property and uses the proceeds to repay (at least in part) your unsecured creditors.
Alabama Bankruptcy Exemptions
Not all of your property is up for grabs, however. Alabama (and all of the other states) has enacted laws that protect certain types of property. These laws are called exemptions. Some property is exempt no matter what the value, and other property is exempt only up to a dollar amount. The idea behind exemptions is that someone filing for bankruptcy should not be stripped of basic things needed for living – like shelter, clothing, furniture, a car, and the like. (Learn more about how bankruptcy exemptions work.)
Some states allow you to choose between the state exemption system and another set, called the federal bankruptcy exemptions. But Alabama is not one of these states. If you file for bankruptcy in Alabama, you must use the Alabama bankruptcy exemptions.
Keeping Jewelry Under the Alabama Bankruptcy Exemptions
Alabama doesn’t have an exemption specific to jewelry. But if you have jewelry, a watch, or a wedding ring, you can use the below exemptions. If you are married and filing a joint bankruptcy, you can double these amounts.
Wearing Apparel Exemption
In Alabama, you can keep all wearing apparel that is “proper and necessary.” Wearing apparel can include jewelry. However, in order to keep jewelry under this exemption, the court must believe that the item is proper and necessary. What does this mean?
A 2001 Alabama bankruptcy court case shed some light on this issue. In that case, In re Peterson, 280 B.R. 886 (S.D. Ala. 2001), the court referred to a list of factors that other state courts have considered when determining if an item of apparel or jewelry was necessary and proper. Those factors included:
- the nature of the items
- how often the debtor wears the items
- what occasions, if any, dictate the wearing of the items (for example, does the debtor need to wear the item to work?)
- the amount of emotional attachment to the items (for example, is the item of jewelry a wedding ring or your great grandmother’s brooch?)
- the number of jewelry pieces claimed as exempt
- the circumstances under which the items were acquired (is the necklace a family heirloom?)
- the station in life of the person claiming the exemption, and
- the value of the items (a $5,000 diamond necklace is not likely to pass muster).
In In re Peterson, the court allowed the debtor to keep her $600 Cartier watch. However, the court did not allow her to keep a second $3,200 Cartier watch, reasoning that she only needed one watch, and the cheaper one would serve her just fine. The court also refused to deem her $950 gold and diamond necklace and her $900 emerald ring as “necessary.” The court made clear that items of jewelry that enhance the debtor’s prestige or status don’t come under the wearing apparel exemption.
In Alabama, you can protect up to $3,000 of any type of personal property (except wages). You may use some or all of this to exempt jewelry.
How to Value Jewelry in Bankruptcy
The value of your jewelry for exemption purposes is the amount you would have to pay, on the date you file for bankruptcy, to replace each item with a used item of similar age and in similar condition. There are various methods of determining the replacement value, but for expensive jewelry you will almost always need an appraisal. (Learn more about how to value personal property in bankruptcy.)
Other Ways to Keep Jewelry in an Alabama Bankruptcy
If you want to keep nonexempt items of jewelry, the trustee may accept other items of exempt property in exchange for the jewelry. The trustee would then sell these items instead of your jewelry to repay your creditors.
Similarly, if you have some cash, you may be able to reimburse the bankruptcy trustee for the value of the jewelry you want to keep. Again, the trustee would use this money (instead of selling the jewelry) to repay unsecured creditors.