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Bankruptcy in Arizona, Part 4

Continued from Bankruptcy in Arizona, Part 3


State versus federal exemptions

Although bankruptcy is administered by federal law (the "Code"), the code allows states to opt out of federal bankruptcy exemptions and to provide their own exemptions. These exemptions are what debtors claim in order to protect certain assets necessary to their ongoing lives and effort to start over. Exemptions include such obvious items as a home, an automotive vehicle, household possessions and tools but also include such assets as insurance policies, retirement accounts, child support and jury awards.

Arizona does not allow federal bankruptcy exemptions

According to "Exemptions in Arizona," published by the Arizona district bankruptcy court, "Federal bankruptcy law provides that an individual debtor can protect some property from the claims of creditors either because it is exempt under federal bankruptcy law or because it is exempt under the laws of the debtor’s home state. 11 U.S.C. § 522(b). Arizona is an 'opt-out' state and has taken advantage of a provision in the bankruptcy law that permits each state to adopt its own exemption law, in place of the federal exemptions. Thus, those debtors filing bankruptcy in Arizona are allowed the exemptions as set forth in the Arizona statutes and federal non-bankruptcy statutes."

Know your residency requirements

Furthermore (emphasis added), "Arizona residents may claim the exemptions made available by Arizona law only if they were domiciled in Arizona for all of those two years before the bankruptcy filing."

Examples of state exemptions

Following are some crucial exemptions, as listed in the document, accompanied by the pertinent Arizona statute:

  • Homestead, $150,000 (may not be doubled for a married couple); A.R.S. § 33-1101

  • Personal property--

    • Household furnishings $4,000 (may be doubled for married couple); A.R.S. § 33-1123 [Note: extremely detailed and specific, including number of tables and chairs, bedding, electronics, etc.]

    • One automobile, $5,000 (If debtor is physically disabled, the fair market value of the
      motor vehicle shall not exceed $10,000); A.R.S. § 33-1125(8)

  • Money, Benefits or Proceeds--

    • Life insurance proceeds, $20,000 if payable, to surviving spouse or child upon the life of a deceased spouse, parent or legal guardian; A.R.S. § 33-1126(A)(1)

    • Child support or spousal maintenance received pursuant to a court order; A.R.S. § 33-1126 (A)(3)

    • Money, proceeds or benefits from employer health, accident, disability insurance benefits or similar employer benefit program; A.R.S. § 33-1126(A)(4)

    • Proceeds from destruction of or damage to exempt property and all proceeds or benefits arising from fire or other insurance on exempt property; A.R.S. § 33-1126(A)(5)

'Legal counsel should be consulted,' says court

These are merely a few of the exemptions available to anyone filing for bankruptcy protection. Please notice that the court document also emphasizes: "Legal counsel should be consulted to determine what property can be claimed as exempt and how to apply the value limitations found in the Arizona statute."  And as for residency, the court says (emphasis added):
If the debtor was not domiciled in Arizona for all of those two years, then the debtor must claim the exemptions provided by the state where the debtor was domiciled for the greater part of the six months between two years and two and a half years before the bankruptcy filing. 11 U.S.C. § 522(b)(3)(A) (effective for cases filed after October 17, 2005). If the debtor is ineligible to claim exemptions provided by that state’s law, then the debtor may claim exemptions provided in Bankruptcy Code § 522(d), which are not listed in this pamphlet. Legal counsel must be consulted if the debtor was not an Arizona resident for all of the two years before filing bankruptcy.

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