Oklahoma law is very specific regarding the type and amount of jewelry that a person filing bankruptcy can protect and keep.

Oklahoma law allows a person filing bankruptcy to protect or “exempt” up to $3,000 worth of wedding and anniversary rings.  See 31 O.S. sec. 1(A)(8). If a married couple file bankruptcy together, then each spouse may claim the $3,000 exemption and protect up to $6,000.00 worth of wedding and anniversary rings.

Notice that the Oklahoma exemption statute says you can only protect wedding and anniversary rings. It makes no provision for other types of jewelry such as earrings, necklaces, bracelets, watches or rings other than wedding and anniversary rings.

However, in the 16 years that I have been a bankruptcy lawyer, I have never had a client have to surrender any jewelry to a bankruptcy trustee. That’s because any jewelry that my clients have owned and properly disclosed has been of minimal value below the value that would make it worth a trustee’s time to liquidate and administer on the behalf of unsecured creditors.

If a client thought that the value of his or her wedding or anniversary rings was more than the allowed $3,000.00, then I would advise the client to obtain an appraisal of the ring. Most often, the resale value of wedding and anniversary rings is far less than the sentimental value we attach to such items.

A written appraisal will help establish that the true fair market value of the jewelry is below the allowed $3,000.00.  Or if the ring is worth more than the allowed $3,000.00 but not substantially more, a written appraisal can convince a bankruptcy trustee that the jewelery is not worth enough in excess of the allowed $3,000.00 to make the effort to liquidate worthwhile.

That’s because if the bankruptcy trustee decided to take the ring and sell it for the benefit of your creditors, the trustee would have to pay you the first $3,000.00 from the sale proceeds. And unless the ring is extremely valuable, the amount remaining after deducting your $3,000.00 and the trustee’s expenses of liquidation would likely leave very little to be split among your unsecured creditors which would make the whole liquidation process not worth the effort.

So while Oklahoma law only allows you to protect your wedding and anniversary rings, if the rest of your jewelry consists of costume jewelry and other pieces with a low resale value, the probability that you will lose your earrings, necklaces and bracelets is extremely low. A bankruptcy trustee just isn’t going to be interested.

Last week the United States Supreme Court granted certiorari in Schwab v. Reilly (08-538), a case from the Third Circuit Court of Appeals. The case will be argued next term and the Supreme Court is limiting its review to the two following questions:

1. When a debtor claims an exemption using a specific dollar amount that is equal to the value placed on the asset by the debtor, is the exemption limited to the specific amount claimed, or do the numbers being equal operate to “fully exempt” the asset, regardless of its true value?

2. When a debtor claims an exemption using a specific dollar amount that is equal to the value placed on the asset by the debtor, must a trustee who wishes to sell the asset object to the exemptions within the thirty day period of Rule 4003, even though the amount claimed as exempt and the type of property are within the exemption statute?

The Third Circuit Court of Appeals ruled for the debtor saying:

“We decide whether a Chapter 7 trustee who does not lodge a timely objection to a debtor’s exemption of personal property may nevertheless move to sell the property if he later learns that the property value exceeds the amount of the claimed exemption. Where, as here, the debtor indicates the intent to exempt her entire interest in a given property by claiming an exemption of its full value and the trustee does not object in a timely manner, we hold that the debtor is entitled to the property in its entirety.”

• Opinion below (3rd Circuit)
• Petition for certiorari
• Brief in opposition
• Petitioner’s reply brief
• Brief amicus curiae for National Association of Bankruptcy Trustees (in support of petitioner)

When the Supreme Court releases its decision, I’ll post an update.

Source: SCOTUS Blog and BankruptcyProf Blog.