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What are bankruptcy exemptions and why are they important in a Chapter 7 bankruptcy?
Bankruptcy exemptions are the laws that determine what property a person can keep after filing a Chapter 7 bankruptcy. The basic idea behind Chapter 7 bankruptcy is to give a fresh start to the filer while being fair to creditors. Filers are able to protect certain property that everyone needs to maintain a basic standard of living. The classic example of such an asset is your basic household furniture. Other assets, such as investment property, expensive jewelry, stocks, or luxury items are sold by the bankruptcy trustee for the benefit of unsecured creditors. Each state has a set of exemptions and the U.S. Bankruptcy Code includes the federal bankruptcy exemptions. The bankruptcy court determines whether the exemptions claimed by the filer are proper.↑ Back to top
Does Arizona allow the use of federal bankruptcy exemptions?
Arizona has opted out of the federal bankruptcy exemptions. If you’ve lived in Arizona for at least 2 years when your bankruptcy is filed, you have to use the Arizona exemption laws. Arizona law does allow the use of the exemptions for retirement accounts as set forth in the Bankruptcy Code. The Arizona bankruptcy exemptions are outlined in the Arizona Revised Statutes, or A.R.S. Some filers are able to take advantage of certain federal nonbankruptcy exemptions to protect certain property such as social security benefits or retirement benefits for Veterans.↑ Back to top
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Arizona Bankruptcy Exemptions
Real Property - the Arizona Homestead Exemption
Arizona has one of the more generous homestead exemptions protecting your interest in real estate in the country. If you own your home, you can protect your equity up to $150,000. The amount is the same whether the home is owned by a single person or a married couple. A.R.S. § 33-1101.
If you don’t own your home, but had to pay a security deposit to your landlord, you can protect up to $2,000 of that deposit. A.R.S. § 33-1126(C)
Personal Property Exemptions
Household goods and furnishings: Arizona filers can protect household goods and furnishings, including consumer electronic devices, and household appliances with a combined resale value of up to $6,000 for single person or $12,000 for a married couple. A.R.S. § 33-1126(C)
Food, fuel, and provisions: You can protect up to 6 months’ worth of so-called food, fuel, and provisions when you file bankruptcy in Arizona. You can’t purchase gift cards or prepay for services, but you can definitely stock up on paper towels, toilet paper, and whatever non-perishable items you have room to store. The trustee may review your typical spending habits to make sure the money you spent in your pre-bankruptcy Costco run matches your average monthly expenditures. In that case, it’s also helpful to keep your detailed receipt so you can show the trustee that you didn’t buy items that are not protected, like jewelry. A.R.S. § 33-1124.
Personal items: Unlike the homestead exemption, Arizona allows filers to double the exemption amount for personal property, such as vehicles, household goods, or wedding rings. As long as you use these personal items for a personal, family or household purpose, A.R.S. § 33-1125 allows you to protect the following items, up to the amount stated (doubled for married couples):
Wearing apparel (clothes) with a combined fair market value of up to $500
Musical instruments with a combined value of up to $400
Hoses, milk cows, poultry with a combined value of up to $1,000
Engagement and wedding rings with a combined value of up to $2,000
Your library, including books, manuals, published materials and personal documents - with a combined value of up to $250
One watch - $250
One typewriter, one computer, one bicycle, one sewing machine, a family bible or a burial plot with a combined value of up to $2,000
One motor vehicle with equity up to $6,000
If you or one of your dependents have a physical disability, you can protect equity of up to $12,000 in your car.
Professionally prescribed prostheses, a wheelchair, or a motorized mobility device - no limit
Firearms - with a combined value of up to $2,000
Domestic animals and household pets - no limit
Miscellaneous other personal property
Most Arizonans who teach in any university, college, seminary of learning, or school use A.R.S. § 33-1127 to protect their library and philosophical and chemical or other apparatus used for teaching.
Arizona filers who participate in a commercial activity, trade, business or profession use A.R.S. § 33-1130 to protect the tools of their trade, including their website.
Not all property can be touched - some of it is in the form of money or benefits that you’re entitled to. Arizona bankruptcy exemptions under A.R.S. § 33-1126 protect the following money benefits or proceeds up to the amount stated:
Up to $300 in your bank account. This amount is determined by the date your bankruptcy case is filed and based on the actual balance in the bank account at the end of the day and doesn’t take into account any pending transactions or checks you wrote that haven’t been cashed yet.
If the money won’t be in their bank account until payday, Arizona filers use A.R.S. § 33-1131 to exempt 75% of these earned but not yet received wages.
A 529 College Savings Plan that you own or are a beneficiary under. There is no limit to this exemption but it doesn’t cover any funds you contributed to the plan in the two years before your bankruptcy filing.
All money received (or to be received) by a surviving spouse on the life of a deceased spouse up to $20,000.
All money received (or to be received) by a surviving child on the life of a deceased parent or guardian up to $20,000.
Minor child’s earnings - no limit
All child support and alimony received (or to be received) under a court order - no limit
Money or benefits received (or to be received) from an under an employer’s policy of health, accident or disability insurance or any similar employer benefit plan. While health savings accounts are not specifically mentioned in this provision, at least one Arizona bankruptcy judge has held that it does protect a health savings account through an employer plan.
Insurance benefits in the form of money received (or to be received) from fire or other property insurance for otherwise exempt property that was damaged or destroyed.
Any claim for damages (including any judgment obtained based on that claim) due to the levy or sale of exempt property.
Cash surrender value of life insurance policies the filer has owned for an uninterrupted two years before filing bankruptcy but only if the beneficiary of the policy is the surviving spouse, child, parent, brother or sister, or any other family member who is a dependent of the debtor.
Arizona filers can also use A.R.S. § 20-1132 to exempt their interest in a group life insurance policy or the life insurance proceeds from that policy.
An annuity contract the filer has owned for an uninterrupted two years before filing bankruptcy but only if the beneficiary of the annuity is the filer, their surviving spouse, child, parent, brother or sister, or any other family member who is a dependent of the debtor.
Interest in an ERISA qualified retirement plan, including IRAS. Unlike the federal exemption for retirement accounts, this protection applies even if you inherit your interest in the account from someone. It does not protect any contributions made to the account in the 120 days (4 months) before filing the bankruptcy.
If your retirement account is not inherited, you can also use the exemption for retirement accounts set forth under Section 522(b)(3)(C) of the Bankruptcy Code. Arizonans can use that provision of the federal law to protect qualifying retirement accounts even though Arizona is an opt-out state. This provision does contain a limit of $1,362,800 for an individual debtor, so if you have more than that in your account, it probably makes sense to talk to a bankruptcy attorney about it.
Other Arizona Exemptions
The exemptions outlined above can all be found in Title 33 of the Arizona Revised Statutes. But, Arizona state law includes other provisions that protect your property from creditors, both in the event of a Chapter 7 bankruptcy filing, or outside the context of a bankruptcy. These exemptions include the following:
Unemployment compensation - Arizona filers can protect their unemployment benefits under A.R.S. § 23-783 as long as they keep the funds in a separate account.
Workers’ compensation - Arizona filers can use A.R.S. § 23-1068 to protect their workers’ compensation benefits.
Welfare assistance benefits - Arizonans receiving welfare assistance can use A.R.S. § 46-208 to protect their benefits from creditors.
Arizona filers who are members of the Arizona Board of Regents use A.R.S. § 15-1628(I) to protect their benefits, annuities as well as employee and employer contributions.
Arizona filers who have a police officers’ pension use A.R.S. § 9-931 to exempt their pension.
Arizona filers who have an interest in the Fire Fighters’ Relief and Pension Fund use A.R.S. § 9-968 to exempt their pension.
State employees filing bankruptcy can use A.R.S. § 38-762 to exempt their survivor benefits before retirement.
Public Safety Personnel Retirement System benefits are protected by A.R.S. § 38-850(C). This exemption includes benefits and employee/employer contributions, including interest, earnings and all other credits.
Arizona filers who have an Arizona Rangers’ Pension use A.R.S. § 41-955 to protect their pension.
Filing Chapter 7 bankruptcy?
Schedule a free consultation with an Arizona bankruptcy lawyer to find out whether you have anything to worry about with respect to the property that Arizona law allows you to protect. They’ll be able to discuss not only whether bankruptcy is right for you, they’ll also be able to let you know if you own something that you can only protect in a Chapter 13 bankruptcy. Hiring an attorney can definitely be worth it if you’re worried about losing property that is not covered by the Arizona bankruptcy exemptions.
If you don’t have anything that Arizona law doesn’t protect, you may not have to hire an attorney to help you file Chapter 7 bankruptcy. If you’re unable to afford an attorney to help you, for example, if you’re already subject to a garnishment and have no disposable income to spare, you can take this short quiz to find out if Upsolve is able to help you.↑ Back to top