What are Bankruptcy Exemptions?
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Bankruptcy can be a scary word. When one files for bankruptcy, you might think they will lose all their property and have to start from zero. However, this is and has never been the case. Bankruptcy gives you a fresh start by discharging most of your debts or reorganizing your payment plan over some time. Additionally, there are bankruptcy exemptions that ensure you still keep afloat even after declaring bankruptcy. Sometimes, you may even keep all your property, or almost all, while getting rid of the accumulated debt.
Bankruptcy exemptions are laws outlined in the Bankruptcy Code and state laws allowing one to keep some assets when filing for bankruptcy. These exemptions protect specific property (mostly essential possessions) from being taken away by a bankruptcy trustee to sell and pay creditors. This ensures you do not lose everything when declaring bankruptcy, allowing you to rebuild your life after bankruptcy.
Bankruptcy exemptions are listed on Schedule C, a form filled and submitted to the bankruptcy court during a bankruptcy case. In this form, you can list all the property you need to claim as exempt and the bankruptcy code provision or state law that protects that property.
State and Federal Bankruptcy Exemptions
Each state has its bankruptcy exemptions in addition to the federal ones. However, you cannot mix and match your state’s bankruptcy exemptions with the federal bankruptcy exemptions. State exemptions vary from state to state, and some states may be more generous with their exemptions, while others are more restrictive.
Additionally, some states, including Arizona, have opted out of the federal bankruptcy exemptions, so if you are filing for bankruptcy in these states, you can only use the state’s bankruptcy exemptions. The bankruptcy exemption laws applicable to your case depend on your domicile requirements.
Who is Eligible for Bankruptcy Exemptions?
Only individuals qualify for bankruptcy exemptions under Chapter 7 and Chapter 13 bankruptcy. In the case of a business, the business has to close down, and the property is returned to secured creditors or sold to pay unsecured creditors.
Additionally, each exemption has a dollar limit, and if your asset exceeds the exemption limit, you may be unable to exempt it entirely. Lastly, some states require you to meet specific residency requirements to use their exemptions. For instance, if you just moved to a new state and have lived there for less than 180 total days, you may need to use the exemptions of your previous state. It is best to consult an experienced bankruptcy attorney to advise you and help you maximize your exemptions.
Bankruptcy Exemptions in Arizona
Arizona bankruptcy exemptions are listed in the Arizona Revised Statutes, ARS. Although a filer in Arizona has to use the Arizona exemption laws, the state has one of the more generous bankruptcy exemptions in the country. You can exempt any property that falls in the categories listed in the ARS up to a certain dollar amount.
While there are certain debts you cannot erase in bankruptcy, known as non-dischargeable debts, the following are some of the exempt properties covered by Arizona exemptions:
Real Property -Arizona Homestead Exemption
- You can protect your home up to $150,000 in equity, or if you are renting and had to pay a security deposit, you can protect up to $2,000 of the deposit.
- One motor vehicle of up to $6,000 in equity or up to $12,000 in case a debtor or the debtor’s dependents are disabled or elderly
- Household items such as furniture and appliances of up to $6,000 or up to $12,000 for married couples
- Up to 6 months’ worth of food, fuel and provisions
- Clothing of up to $500 or $1000 for married couples
- Musical instruments of up to $400
- One watch worth up to $150
- Engagement ring or wedding ring with a value of up to $2,000
- Pets are entirely protected
- Cash in a checking or savings account of up to $300 in a single bank account
- 75% of the debtor’s disposable income or earning more than 30 times the federal minimum wage per week
- A 529 college savings plan, excluding funds contributed to the plan two years before the bankruptcy filing
- All alimony and child support received or to be received
- Pension benefits
- Workers’ compensation
Anything not protected in bankruptcy is called non-exempt and can be sold to pay off creditors in Chapter 7 bankruptcy. In Chapter 13, the value of the non-exempt property is used to determine how much you have to pay unsecured creditors. Examples of non-exempt property in bankruptcy include:
- Luxury items such as yachts, fur clothes, expensive watches
- Any secondary residential property
- A second car
- Investments other than retirement accounts
- Family heirlooms
- Valuable artwork
Contact an Experienced Arizona Bankruptcy Attorney Today
If you are worried about Arizona’s bankruptcy exemptions or whether you can protect specific properties from seizure, our experienced Tucson bankruptcy attorney, Eric Ollason, can help you navigate the complexities of the bankruptcy law, maximize your exemptions, and ensure a smooth process. Contact us at (520) 791-2707 or online for a free consultation today.