What Happens To My Engagement/Wedding Ring In Arizona Chapter 7 Bankruptcy?

So, what is your most valuable asset – your house maybe? Then what? Often times the car is next in line. But, if you are married, wedding/engagement rings are pretty high on this list. Thus, it is not surprising that wedding/engagement rings are a subject of apprehension when filing for Arizona chapter 7 bankruptcy protection.

The good news there is an engagement/wedding ring exemption in Arizona, that allows you to keep these items when filing for chapter 7 bankruptcy protection. The bad news? The Arizona engagement/wedding ring exemption is limited to $1000. However, as an experienced Arizona bankruptcy attorney, there are a few tricks I have learned that just may help cover your wife’s sparkler.

First and foremost, accurate valuation of the jewelry is important. I hate to even bring this up, but there is an unbelievable mark-up on diamond jewelry. If this concept is foreign to you, go rent Blood Diamond. What’s more is that this mark-up seemingly evaporates just after the jeweler slips you that tiny velvet box, as the resale value of used jewelry shows marked depreciation.

So, what does this mean for you (besides being sure she’s the one before you buy the darn ring)? It is likely the ring your wife is currently wearing will be valued in a bankruptcy proceeding at a price far below purchase price. So, go to a few pawn shops (yes, pawn shops) and ask them what they would give you for it. Then document the location, date/time, and conversation you have. Next, try the same at a more reputable consignment shop. Again, document your conversation. This should give you a better idea as to the ‘cash-in-hand’ value of the ring, were the trustee to sell it at auction.

If your ring still appraises higher, don’t despair. There are still options. If you are filing a joint bankruptcy petition, as husband and wife, the engagement ring exemptions can be stacked such that you are allowed a total exempt value equaling $2,000. Note this amount must include both the engagement ring and wedding bands; however, in my experience the wedding bands are often valued considerably lower than the engagement ring.

There are still options if your rings are considered non-exempt under the above scenario. First, you may be able to purchase the ring from the trustee, for an amount equaling the difference between the value of the ring and the allowable exemption. Some trustees may allow you to directly purchase the ring, while others may insist you purchase it in auction. The only catch is that you cannot use a non-exempt sum of money to make up the monetary difference. Given that the personal bank account cash exemption is limited to $150, you may need to turn to other sources.

Another option is to consider selling the ring to a friend or family member. If you sell the ring at appraised value (I rarely bold things, that must be really important), the money received can be exempt if allotted to the’6 months food, fuel and provisions’ clause. Then, you could theoretically purchase this ring back from the friend or family member, for a similar price.

Note that any sales in the immediate time frame of your filing will be scrutinized by the trustee, so it is absolutely necessary that you are able to provide supporting documentation of both a fair market sale price and the application of received funds under the ‘food, fuel and provisions’ clause. Otherwise, you are at the very least risking losing your ring/received funds and possibly even fraud charges.

In any case, you must resist the temptation to ‘lose’ your ring shortly before filing. Bankruptcy fraud is a punishable offense that is not taken lightly. If you are married you will invariably be asked about your engagement and wedding rings. The trustee won’t think you are cute for and by pulling such a stunt you are putting your ring, your discharge, and likely your freedom at risk. I realize these rings are emotionally valuable, but I guarantee that, if you are filing for Arizona chapter 7 bankruptcy, a stress-free discharge is worth more.

I would like to close with a story, which illustrates one last point. I recently had a client whose engagement ring was valued at approximately $900 above the allowed exemptions. So, we filed an asset petition in which the non-exempt portion of the ring was truthfully listed as an asset? You know what happened? The trustee decided not to pursue it and the case was reclassified as ‘no-asset.’

See, most trustees are not monsters and understand the sentimental value of your wedding/engagement rings. What about the monsters you ask?  They still face time constraints and administration costs that often make it unapealling to chase after low value non-exempt items. So, unless you have other non-exempt assets or your diamond is the size of a golf ball, you may just squeak by.