Arizona Bankruptcy Exemptions

If you are filing for Chapter 7 bankruptcy, all the assets you need will likely be exempt. This means these assets will not be considered in the bankruptcy process. Your assets will be yours to keep. There are notable exceptions. For example,if you have jet skis and vacation homes, maybe not exempt. However, if you owe a reasonable amount on your home and car, probably exempt. Most people keep their home and car, everything in their home, and most other things in a chapter 7 bankruptcy. Even business assets can be exempt in a personal bankruptcy. With the recent changes in Arizona bankruptcy exemptions, and the new Arizona homestead exemption law, it is worth a closer look.

Can I Keep My Home if I File Bankruptcy?

Yes, people nearly always keep their home through the bankruptcy process. Here’s how.

Arizona has a very generous exemption for equity in your home. The Arizona Homestead Bankruptcy Exemption is up to $250,000. However, there are some qualifications below. That means that you could have up to $250,000 in equity in your home and still keep it in bankruptcy.

Equity is the difference between what you owe and what the home is worth. If you owe $300,000 on the home, the home could be worth up to $550,000 and still be exempt. Valuation is somewhat subjective, so don’t get caught up in the actual valuation. If the Bankruptcy court attempts to get value from the home, the court would still have to pay costs of sale. This is usually 6% to the sales agent. Additionally, sale by a bankruptcy court will rarely bring full value. Therefore, any valuation from Zillow, or even an appraisal, is fluid in the bankruptcy process.

Do I have to Include My Home in Bankruptcy?

The bankruptcy process is not one where you “put the home in,” or “take the home out.” That sounds more like the Hokey Pokey. In bankruptcy, you simply list all of your assets and liabilities. With secured assets, you declare what you owe, and what the asset is worth. Based on this valuation, you will then use the appropriate exemption from Arizona Revised Statutes. Once the asset is properly exempted, you can simply check a box electing to keep the asset, or forfeit the asset. If you keep the asset, you will have to pay the secured lien. If you forfeit the asset, you simply give it back and owe nothing.

What is the Arizona Homestead Exemption?

A.R.S. § 33-1101 – Any person eighteen years of age or over, married or single, who resides within this state may hold as a homestead exempt from execution and forced sale, not exceeding $250,000 in value, any one of the following:

1. The person’s interest in real property in one compact body on which exists a dwelling house in which the person resides.

2. The person’s interest in one condominium or cooperative in which the person resides.

3. A mobile home in which the person resides.

4. A mobile home in which the person resides plus the land on which that mobile home is located.

Can we use two homestead exemptions?

Only one homestead exemption may be used, regardless of who is filing. Even if you get divorced, and you lived together on the property when you were married, you could still only claim one $250,000 exemption.

What if I sell my home? Can I still use the homestead exemption?

Yes! If you sell your home, the homestead exemption will attach to the money you get from the sale for 18 months, or until you establish a new homestead, whichever is shorter. This applies whether you sold the property or the property was forced to be sold like in a foreclosure. Be careful though, the homestead exemption does not attach to money you get from refinance. The homestead exemption only attaches to money you get from the sale of the home.

Do I need to register my home to get the homestead exemption?

Unlike other states, like Nevada for one, the homestead exemption automatically attaches in Arizona. You do not need to register or declare the homestead exemption, except on the bankruptcy petition.

1215-DAY RULE IN BANKRUPTCY

The U.S. Bankruptcy Code limits the homestead exemption. If you file for bankruptcy within 1215 days of buying your home, you do not get the full amount of Arizona’s homestead exemption. Why 1215 days? We don’t know. The U.S. Congress makes this stuff up. Regardless, 1215 days is about 3 years and 4 months. Pursuant to 11 U.S.C. § 522(p), “a debtor may not exempt any amount of interest that was acquired by the debtor during the 1215-day period preceding the date of the filing of the petition that exceeds in the aggregate [$170,350] in value”.

Stripping Liens in Bankruptcy

If a creditor takes a judgment against you, that judgment will automatically attach to real estate in any county the lien is recorded. In Arizona, this is true for real estate you now own, or real estate you buy in the future. The judgment even attaches to homestead real estate. These types of creditors are known as judgment creditors. They may have started out as a credit card or personal loan. However, once they sued and got a judgment, they get special status as judgment creditors.

Judgments will automatically attach to real estate and homestead properties. Therefore, even if you discharge the debt, the judgment lien will still survive the bankruptcy. However, you may have heard of an old technique called stripping liens in bankruptcy. U.S. Bankruptcy Code Section 522(f) (11 U.S.C. § 522(f)) says that a debtor can get rid of a judgment lien that impairs their ability to claim the homestead exemption. In bankruptcy, a debtor can ask the court to declare the lien invalid if it cuts into their homestead exemption amount.

This may sound like a good deal, but in reality it is not used much. The homestead exemption is not applicable to a refinance. The homestead exemption is paid after consentual creditors in the sale of real estate. Consentual creditor are the liens to which you agreed, like a mortgage. Therefore, the judgment creditor only gets paid after the homestead amount of $250,000 is paid to the owner. Because the judgment creditor is not paid until after the homestead amount, it is not normally the case that it interferes with the homestead exemption.

Home Equity in Chapter 13 Bankruptcy

Even if your home has uber equity and is way over the homestead exemption, you can always finance that extra equity through a chapter 13 bankruptcy. All this means is that you pay as much as the creditors would have received in a chapter 7 bankruptcy over five years. There is almost always a way to keep a home in bankruptcy.

Because of the quickly increasing property values, a lot of homeowners have more value than the homestead exemption allows. This requires an additional amount of bankruptcy planning. Questions about this and any of the homestead exemptions should be discussed with a bankruptcy lawyer to protect you.

Can I keep my Car if I File Bankruptcy?

Yes, almost everyone is able to keep their car in bankruptcy. Here is how:

1. Exempt Equity – The easiest way to keep your car in bankruptcy is to have less than the exempt amount of equity. Equity is the difference between what you owe and what the car is worth. If you owe $24,000 on the car and the car is worth $30,000, you have $6000 in equity. If you owe more than the car is worth, you have no equity, or negative equity.

Vehicles are conditionally protected by exemption laws. $6,000 of your car’s equity is exempt and untouchable. If you are disabled, that exemption rises to $12,000. If you have little equity in your car or its value falls at or below the $6,000 limit, there is little chance it will be of any interest to the court.

2. Bankruptcy Planning – Even if your car has too much equity, the equity is only measured on the filing day. If you have more than the exempt amount of equity in your car, go get a title loan. The title loan will increase the amount you owe on the car. Make sure that if the car were sold, there would be less than the exempt amount of equity left. That way, the court will not be interested. For example, if you have a car that is paid off, and it is worth $10,000. Go get a $5000 title loan. Use the money to pay for necessities like paying your car payments, rent or utilities ahead. Then when you file, you have less equity in your car. It’s not illegal, as long as you are paying the loan back and you do not have the cash at the time of filing.

3. Lazy Creditors – Check if your lender properly secured against the vehicle. You can do this at azmvdnow.gov. If the creditor failed to secure against the vehicle, you might have more equity than you think. Additionally, Registration loans are not secured against the car. A registration loan is just a personal loan and will not reduce the equity.

4. Redemption – If you owe a substantial amount more than the car is worth, you might consider redemption. This is a motion with the court to buy the car for what it is worth, regardless of what you owe. It is the same to the court because if you forfeited the vehicle, they would have to sell it anyway. They just as well sell it to you. This is a good option, but you would have to come up with the money to pay for the car. There are some companies who will do this for you. 722redemption.com is one of them. A lot of law firms will not file these motions anymore since the Arizona bankruptcy judges stopped allowing payment for them. But it is still an option.

5. Keep and Pay – A sneaky way around being upside down on a car is called a Mustafa Order. This is an order made up by the court where you keep the car and just keep making payments. Once you are finished with the car, you can just tell the creditor to come and get it. You are not responsible for any of the negative equity or arrears on the car. This is a great way to keep your car, but still be able to get rid of it whenever you like. Some attorneys will not do a Mustafa order. It required an extra court appearance. You should not have to pay for this extra appearance. Ask the lawyer if he does Mustafa orders for free. If not, call us. We do.

6. Get a New Ride – Usually your best option is just to get a new or different car. You will normally qualify for a different car immediately when you file bankruptcy if you have not had a foreclosure in the last two years. You will have no debt and are able to make a monthly payment. You are a car salesman’s dream. If you need help with this, we have a dedicated car broker that can get you a loan the day you file and he will find a car for you, too. New cars are fun. Variety is the spice of life.

Can I keep my Furniture?

Your household appliances and furniture also carry with them an exemption. This exemption is up to $6,000 and can be applied to any pieces you deem fit. When you list your desired exemptions, declare the value of the property you would like held exempt and your intent to preserve it.

Can I keep my Retirement Fund?

Retirement accounts that are tax exempt, including 403(b)s, 401(k)s, and simple IRAs, are entirely exempt from collection and distribution during a Chapter 7 proceeding.

Can I keep my Pensions?

Police officer, firefighter, disability, state retirement, and Roth IRAs are all exempt from seizure during a bankruptcy.

Stop Wage Garnishment

The idea of garnished wages is an unpleasant one. Many times, before filing for bankruptcy, wages will be collected as payment for debt before they even enter into the employee’s bank account. One of the benefits of bankruptcy is that this stops entirely. When the initial petition is filed, the automatic stay prevents any wage garnishments from continuing. This endures throughout the bankruptcy proceeding and extends to the courts and trustees, as well. No wages will be forcibly taken from you in an effort to pay debts under Chapter 7 laws.

Living Expenses

Up to six months of food and fuel expenses are immune from being seized as assets to pay off debt during your  Chapter 7 case. This means certain funds you have saved may be protected, and you can continue to live decently while you are under bankruptcy to get your financial life back on track.

The above are but a few of the examples of exemptions in. There are many more, and some can be relatively far-reaching. To obtain an exhaustive list or to get an assessment of what pieces of your property could likely stand exempt from Chapter 7’s liquidation procedures, contact one of our knowledgeable  bankruptcy attorneys today. We are open seven days a week with extended hours to serve you and answer any questions you may have concerning the bankruptcy process.