Helping individuals and businesses
Property You Get to Keep After Bankruptcy
Many people are under the impression that the Bankruptcy Court takes everything a person owns when they file a Bankruptcy. This is not the case. Persons filing Chapter 7 may keep all exempt property and can often arrange to purchase non-exempt items they desire to keep from their case Trustees. Debtors filing Chapter 13 do not usually turn over any of their property. Because Arizona has opted out of the Federal Bankruptcy Exemptions, persons filing in Arizona must generally utilize the Arizona bankruptcy exemptions, summarized below. The following list does not contain every available exemption, only the most commonly used. We do extensive exemption planning prior to filing any case.
Debtors may claim a homestead exemption in up to $150,000 of equity in the real property upon which the debtor’s house sits, condo or co-op, a mobile home in which the debtor resides and the land upon which the mobile home is located. A.R.S. § 33-1101. This statute has been interpreted to allow the use of the homestead exemption to claim an exemption in a motor home in which a debtor resides as his/her primary residence. See In re Irwin, 293 BR 28 (Bankr. D. Ariz. 2003) (holding that “motor home” can satisfy the definition and purpose of Arizona’s homestead law). This exemption cannot be doubled for husband and wife. Note that under A.R.S. § 33-1104(E) title held in a removable trust does not necessarily lead to abandonment of homestead exemption.
Debtors may exempt one car with equity up to $6,000. If the debtor is physically disabled, that exemption is doubled to $12,000. A.R.S. §33-1125(8). Married filers may claim up to $6,000 exemption in two cars or they may stack their exemption and claim up to $12,000 exempt in one single vehicle. See In re Perez, 302 BR 661 (Bankr. D. Ariz. 2003). Married debtors may not split this exemption, for example by claiming one vehicle worth $5,000 exempt and another vehicle worth $7,000 exempt. The value of the vehicle should be assessed using Kelley Blue Book or NADA.
Debtors may not exempt any amount of cash. However, Arizona provides an exemption of $300 for money in one bank account. A.R.S. § 33-1126(A)(9). Married filers may double this exemption to $600. Prior to filing their case, debtors may use excess money in their account to purchase exempt property described herein, to pay their attorneys’ fees, and to pay everyday expenses. Debtors may not spend down money in a bank account on paying off select debts such as those to family members.
Household Goods and Furnishings. Debtors may claim up to $6,000 exempt in household furniture, furnishings and appliances used personally by the debtor. This exemption can be doubled to $12,000 for married filers. A.R.S. § 33-1123.
- – One kitchen and one dining room table with four chairs each, plus one additional chair for each dependent of the debtor who resides in the household if the debtor and dependents exceed four in number
- – One living room couch
- – One living room chair, plus one additional chair for each dependant of the debtor who resides in the household
- – Three living room coffee or end tables
- – Three living room lamps
- – One living room carpet or rug
- – Two beds, plus one additional bed for each dependent of the debtor who resides in the household
- – One bed table, dresser and lamp for each bed allowed above
- – Bedding for each bed allowed above
- – Pictures, oil paintings and drawings, drawn or painted by the debtor any family portraits in their necessary frames
- – One television set or radio or stereo
- – One radio alarm clock
- – One stove
- – One refrigerator
- – One washing machine
- – One clothes dryer
- – One vacuum cleaner
Food, Fuel, & Provisions
Debtors may exempt six months worth of food, fuel, and provisions for the debtor’s individual or family use. A.R.S. § 33-1124. Generally, this enables debtors to prepay their electric and gas bills for six months and stock up on food. This exemption does not allow debtors to purchase gas cards or grocery cards because such cards can be used for purchases other than food, fuel, and provisions.
Debtors may exempt up to $500 in their wearing apparel used primarily for personal, family or household purposes. A.R.S. § 33-1125(1). Married debtors may double this exemption.
Debtors may exempt up to $400 in musical instruments used primarily for individual or family use. A.R.S. § 11-25(2). Married debtors may double this exemption.
Animals & Pets
Debtors may exempt up to $800 in domestic pets, horses, milk cows and poultry. A.R.S. § 11-25(3). Married filers may double this exemption.
Engagement & Wedding Rings
Debtors may exempt up to $2,000 in all engagement and wedding rings. A.R.S. § 33-1125(4). Married filers may double this exemption.
Books & Personal Documents
Debtors may exempt up to $250 in the debtor’s library, including books, manuals, published materials and personal documents. A.R.S. § 33-1125(5). Married filers may double this exemption.
Debtors may exempt one watch with value up to $150. A.R.S. § 33-1125(6). Married filers may double this exemption.
Sporting Goods & Firearms
Debtors may exempt up to $1,000 in one typewriter, one bicycle, one sewing machine, a family bible, a burial plot, one shotgun or one rifle or one pistol. A.R.S. § 33-1125(7). Married filers may double this exemption.
Prostheses & Wheelchairs
Debtors with prescriptions may exempt all professionally prescribed prostheses or those for the dependent of the debtor. This includes a wheelchair. A.R.S. § 33-1125(9).
Life Insurance Proceeds
Debtors may exempt up to $20,000 in life insurance proceeds if payable to a surviving spouse or child upon the life of a deceased spouse, parent or legal guardian. A.R.S. § 33-1126(A)(1).
Minor Child’s Earnings
Debtors may exempt 100% of the earnings of a minor child unless debt to be discharged was contracted for the special benefit of the minor child. A.R.S. § 33-1126(A)(2).
Child Support & Spousal Maintenance
Debtors may exempt child support or spousal maintenance received pursuant to a court order. A.R.S. § 33-1126(A)(3).
Health, Accident, & Disability Benefits
Debtors may exempt all money, proceeds or benefits from employer health, accident, disability insurance benefits or similar employer benefit program. A.R.S. § 33-1126(A)(4).
Property Insurance Proceeds
Debtors may exempt all proceeds from destruction of or damage to exempt property and all proceeds or benefits arising from fire or other insurance or exempt property. A.R.S. § 33-1126(A)(5).
Cash Surrender Value of Life Insurance Policies
Debtors may exempt the cash surrender value of life insurance policies where for a continuous unexpired period of two years such policies have been owned by a debtor and have named as beneficiary the debtor’s surviving spouse, child, parent, brother or sister, or any other dependent family member, except for the amount of any premium that is avoidable by a creditor as a fraudulent transfer. A.R.S. § 33-1126(A)(6); A.R.S. § 20-1131(D).
Debtors may exempt an annuity contract where for a continuous unexpired period of two years such contract has been owned by a debtor and has named as beneficiary the debtor, debtor’s surviving spouse, child, parent, brother or sister, or any other dependent family member, except for the amount of any premium that is avoidable by a creditor as a fraudulent transfer. A.R.S. § 33-1126(A)(7). Some annuity companies have been known to list themselves as the owner, in which case the exemption may not apply.
Retirement Accounts (IRAs & 401(k))
Debtors may exempt all amounts in an IRA or 401(k) except those amounts contributed within 120 days of filing. A.R.S. § 33-1126(B). Note: inherited IRAs are treated differently and require additional analysis. Also, beware of self-directed IRAs. Our firm has had cases in which trustees have gone after self-directed IRA accounts. One common theory seems to be that certain self-directed IRA companies (for example Vantage) may have language in their agreements that is in conflict with the IRS rules concerning indemnification. While the IRS has not gone after these companies, trustees have attempted to argue that the contract language essentially renders the accounts non-exempt.
Prepaid Rent & Security Deposits
Debtors may exempt prepaid rent, including security deposits as provided in A.R.S. § 33-1321(A) for the debtor’s residence, not exceeding the lesser of $1,000 or 1.5 month’s rent where the debtor has not claimed a homestead exemption. These amounts are not exempt from orders resulting from a judgment for child support arrearages or child support debt. A.R.S. § 33-1126(C).
Group Life Insurance
Debtors may exempt group life insurance policies and proceeds. A.R.S. § 20-1132.
Tools of the Trade
Debtors may exempt up to $5,000 in tools, equipment, instruments and books of the debtor or debtor’s spouse primarily used and necessary to carry on the commercial activity, trade, business, or profession of the debtor or debtor’s spouse. Debtors may not use this exemption to claim a motor vehicle used primarily for personal, family, or household purposes such as transportation to debtor’s employment. A.R.S. § 33-1130(1).
Which State’s Exemptions Apply When You Move?
The provisions of 11 U.S.C. § 522 determine whether an Arizona resident has been domiciled in Arizona long enough to require use of the Arizona exemptions. The analysis looks at the domicile history of the debtor for a 730 day period prior to when the case was filed. If a debtor has not been in Arizona for 730 days, it is then necessary to analyze domicile during the 180 days prior to the 730 day period. If during that 180 day period the person was domiciled in Arizona for the longest period of time, then they may take the Arizona state exemptions. If the domicile tests indicate domicile in another state, a person filing in Arizona will be required to utilize that particular state’s exemptions even though their case is filed in Arizona. In rare cases, the federal exemptions may have to be used if no state’s exemptions apply.