A lot of people who realize that they’ve found their “one and only” decide to take the plunge and propose during the holiday season. It makes sense, since not only is it a romantic season but the jewelry stores tend to offer deals on engagement rings and generous terms on payment plans.
However, if your finances are in trouble and bankruptcy is a possibility, you need to hold off on buying that engagement ring for a while. Here’s why.
Your spouse-to-be could have to return the ring
Bankruptcy provisions are designed to protect both the debtor and their creditors. To that end, bankruptcy codes have a “presumptive fraud rule” that says that any luxury purchases made on credit within 90 days of filing for bankruptcy that total more than $800 from one creditor are automatically considered fraudulent.
The rule is the same for any cash advances taken on a credit card totaling more than $1,100 within 70 days of filing. In addition, if you take the ring on a private payment plan offered by the jewelry store itself, then the ring actually serves as collateral until the debt is paid.
What if, however, you use a family heirloom ring to make your proposal? If your mother gives you grandma’s diamond set to use for the engagement, does that solve the problem? If the ring has significant real value, then it becomes an asset that could (potentially) be used to settle some of your debts. Giving it to your fiance shortly before you file for bankruptcy could be seen as a fraudulent transfer.
Ultimately, this means that the bankruptcy trustee could use their “clawback” powers to force your future spouse to hand over their engagement ring – no matter what its source. You might be ordered to repay that debt despite the bankruptcy. Finally, if the trustee feels like you acted intentionally to abuse the process, they could deny your petition for relief altogether.
True love is supposed to be “for richer or for poorer.” However, when bankruptcy is looming, you need experienced legal guidance to avoid serious mistakes.