Whether you can keep jewelry, like wedding rings, necklaces, bracelets, and earrings, in California depends on what type of bankruptcy you file (Chapter 7 or Chapter 13), how much the jewelry is worth, and whether you need to protect other assets as well.
Keeping Jewelry in Chapter 13 Bankruptcy in California
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 California
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.
California Bankruptcy Exemptions
Not all of your property is up for grabs, however. California (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.)
In California, you can choose from two separate sets of bankruptcy exemptions, called System 1 and System 2. You must stick with whatever set you choose -- you cannot mix and match from each set. For this reason, it’s important to review all of the exemptions in each system. You wouldn’t want to pick one system in order to keep jewelry, only to lose your house. (Find out what property is exempt in California.)
Keeping Jewelry Under California’s Exemption System 1
Under California’s exemption System 1, you can keep up to $7,625 of jewelry, heirlooms, and art. If you don’t want to exempt anything else under this category (like expensive artwork), you can put the full amount towards your jewelry.
Keeping Jewelry Under California’s Exemption System 2
California’s exemption System 2 has several exemptions you could use to keep jewelry.
- Jewelry exemption. You can keep jewelry in an amount up to $1,525.
- Wearing apparel exemption. You can keep your wearing apparel if you ordinarily wear it and it's of ordinary value. Several California bankruptcy courts have allowed debtors to keep watches under this exemption, and even a diamond wedding ring if it has sentimental value. Most courts, however, won't allow you to use the wearing apparel exemption to protect expensive diamonds that are worn merely as ornaments or that have extraordinary value. See In re Westhem, 642 F.2d 1139, 1140 (9th Cir. 1981), In re Frazier, 104 B.R. 255, 260-61 (Bankr. N.D. Cal. 1989), In re Millington's Est., 218 P. 1022 (Cal. App. 3d Dist. 1923).
- Wildcard. You can keep up to $1,280 of any property. If you don’t need to use this exemption for something else, you can put the full amount towards your jewelry. (To learn more, see The California Wildcard Exemption in Bankruptcy.)
- Unused homestead exemption. If you don’t use the homestead exemption, or only use part of it, you can use the rest for anything you want, including your jewelry. The homestead exemption in System 2 is $25,575.
Other Ways to Keep Jewelry in California 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.