Compared to the federal exemptions, Arizona’s bankruptcy exemptions are generous and enable debtors to protect additional property.
As a general rule, creditors who obtain a judgment against debtors can ‘execute’ that judgment against the debtor’s property. State and federal law provides certain exceptions or exemptions and protects certain property (up to specified values) from collection action.
Practically speaking, most creditors do not execute judgments against personal property, so many of the exemptions are inapplicable to ordinary collection activity. Most of the time creditors prefer to garnish the debtor’s wages or the debtor’s bank accounts, especially if the debtor does not own a home.
But when a debtor files for bankruptcy, the debtor’s property is relevant to the debtor’s ability to repay debts. This is particularly important for bankruptcies filed under chapter 7 where a trustee is appointed to liquidate or sell the debtor’s non-exempt personal property and distribute the proceeds to creditors. So these categories of protected property are commonly referred to as bankruptcy exemptions where they are applied with more regularity.
Some states allow debtors to choose between state and federal exemptions or use ‘wild card’ exemptions to protect property not otherwise protected. Arizona is not one of those states. Fortunately, the bankruptcy exemptions in Arizona (codified under Title 33) enable most debtors to retain additional property unprotected by the federal exemptions. Arizona organizes its exemptions by category of property, though some statutes are vaguely titled and actually provide multiple exemptions.
The Homestead Exemption
For debtors who own their home, it is understandably a priority when considering bankruptcy. Arizona law enables debtors to protect up to $150,000 of equity (home value minus outstanding loan value) in their residence.
However, unlike many of the personal property exemptions that can be claimed by each spouse when married debtors file bankruptcy jointly, the homestead exemption may be used only once. It lasts for up to eighteen months after the sale of the property or until the debtor establishes a new homestead with the proceeds, whichever comes first.
Household Furniture, Furnishings, and Appliances
This broad category of property can be used to protect furniture and other household goods, consumer electronics (like a television), and home appliances up to a total value of $6,000.
This amount may seem low compared to the nearest equivalent federal exemption, but fortunately Arizona law carves out additional exemptions for other categories of personal items, provided below.
Food, Fuel, and Provisions
This exemption protects “all food, fuel and provisions actually provided for the debtor’s individual or family use for six months[.]” What this actually means can be a source of controversy, even among bankruptcy attorneys.
Many bankruptcy attorneys have interpreted this statute to allow debtors to preserve the cash the debtor anticipates will be needed to provide food and fuel for the next six months.
We know other law firms encourage their clients to purchase significant gift cards from grocery stores and/or gas stations to utilize this exemption. These practices have been rejected by bankruptcy courts who interpreted this exemption to apply only to food and fuel already in the debtor’s possession when the bankruptcy petition was filed.
The title of this statute is vague because it actually enumerates eleven separate exemptions that protect specific types of personal property up to certain fair market values. The total value of the categories may be applied to multiple individual items unless otherwise specified with an asterisk and, as mentioned earlier, married debtors who file bankruptcy jointly usually can each claim up to the total allowance for each category.
- Clothing: $500
- Musical instruments: $400
- Horses, cows, poultry: $1,000
- Engagement and/or wedding rings: $2,000
- Books: $250
- Watch: $250*
- Computer*, Typewriter*, Bicycle*, or Sewing Machine*: $2,000
- Automobile*: $6,000 (or up to $12,000 if the debtor or debtor’s dependent has a physical disability)
- Firearms: $2,000
Debtors also may retain all protheses, wheelchairs, and/or mobility devices prescribed for the debtor or the debtor’s dependent. Also exempt are all domestic animals and household pets.
School equipment such as books and other instructional equipment used to teach at any school or university may be completely exempt.
Money Benefits or Proceeds
Like the personal property exemption, this category enumerates several specific exemptions related to benefits like life insurance proceeds, retirement accounts, spousal maintenance and child support, and annuities. But most notably, it limits the exempt amount of cash (or funds maintained in a bank account) to $300.
This means debtors cannot have more than $300 on hand at the time they file their bankruptcy petition. This is another important consideration when you are deciding the right time to file.
Tools and Equipment Used in Commercial Activity, Trade, Business or Profession
These items, including intangible items such as telephone numbers, client lists, and marketing tools (websites, domains, etc) are exempt up to $5,000.
Like any law, the exemptions are subject to change. The most current and complete list of personal property exemptions can be viewed online under Chapter 8 of A.R.S. Title 33.
Protecting personal property is a paramount concern when considering bankruptcy. If you have any questions about the property exemptions in Arizona or about bankruptcy more generally, contact us for a free consultation.