What happens to your wedding ring when you file bankruptcy? What about your clothing?

Last night my wife jokingly asked me if you will lose your clothing in bankruptcy, and the answer is a resounding NO.

Utah Code 78B-5-505.   Property exempt from execution. protects “all wearing apparel of every individual and dependent, not including jewelry or furs.”  This means that Liberace himself (or for you younger people, Paris Hilton) could file bankruptcy, and the thousands upon thousands of dollars of “wearing apparel” are protected under Utah law.  You will never lose the shirt off your your back.

However, jewelry and furs are another matter, and this includes wedding rings.  Utah Code 78B-5-506.   Value of exempt property protects “heirlooms or other items of particular sentimental value to the individual” up to $1,000 in value.  This means that most people will be okay.  However, if you have a wedding ring worth more than $1,000 (remember, this is the value a pawn shop would pay you if you had to hock the ring to cover the utility bill this month, not the purchase cost), then you might actually lose it in bankruptcy.

For example, let’s say you have a ring worth $5,000.  If you filed a chapter 7, and if it were still worth $5,000, then the trustee could demand that you sell it, keep $1,000, and use the rest for the trustee to pay off creditors.  In this kind of situation, you may decide to file a chapter 13 where you offer to pay that unprotected $4,000 in ring value to your creditors as part of a chapter 13 plan, paying about $100 a month to the court for almost 4 years.

On the other hand, if your ring is still financed, then you can file a chapter 7 and reaffirm or surrender it, and the trustee won’t care one way or the other so long as there is no value over $1,000.  wedding ring

So your ring may be problematic, but you won’t lose the shirt off of your back.

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