Everybody goes through a rough financial patch at some point in their lives, and some in Arizona decide to file bankruptcy.
Filing bankruptcy in Arizona may be a lifeline. When your debts are piling up, and you have no idea how to keep up with the payments anymore. Filing for bankruptcy may be a beneficial way to get creditors off your back. When people talk about bankruptcy, they often refer to Chapter 7 bankruptcy in Arizona. A Chapter 7 bankruptcy is a “liquidation bankruptcy” where all your non-exempt assets may be sold. The money is then split between your creditors.
Exemptions are a critical part of the bankruptcy system. Exceptions help determine what property you get to hold on to after declaring bankruptcy. An experienced bankruptcy lawyer can help you with your case and determine what part of your assets you’re entitled to keep.
Federal vs. State Exemptions
Every state in the U.S has its own set of bankruptcy exemptions, and most will require you to use them. Some states, however, allow the debtor to choose between the state’s exemption system and the federal bankruptcy exemption created by Congress.
When you file for Chapter 7 bankruptcy in Arizona, you may be able to protect some or all of your assets under Arizona’s bankruptcy exemptions. Arizona has chosen to opt-out of federal bankruptcy exemptions. This means debtors who have been residing in the state for no less than 730 days will only be allowed to exempt property under the state’s exemption system and federal non-bankruptcy statutes. Those who have lived in Arizona for less than 730 days will be required to use the exemptions of their previous state or the federal bankruptcy exemptions.
Arizona Bankruptcy Exemptions List
Arizona Homestead Bankruptcy Exemption
The most important exemption on this list is Arizona’s homestead exemption. The homestead exemption allows homeowners to protect up to $150,000 of their home’s equity. This exemption only applies to the primary residence and may not be doubled by husband and wife. In Arizona, the homestead exemption is triggered automatically. It can also be applied to the proceeds if the home is sold.
Automobile Bankruptcy Exemption in Arizona
Under Arizona’s bankruptcy laws, debtors may also exempt one automobile vehicle with up to $6,000 of equity. This amount may increase to $12,000 if you are elderly or disabled. It can also increase if one of your dependents has a physical disability. The state’s automobile exemption is considerably higher than that of the federal government, which is currently at $4,000 of equity in one vehicle.
Arizona Personal Property Bankruptcy Exemption
Personal property is a broad category that protects household furniture, home appliances, and consumer electronics. The exemption for personal property is an aggregate value of no more than $6,000. Arizona law also allows for the following exemptions, given that no individual item has a fair market value of more than $625:
- Clothing – up to $500
- Musical instruments – up to $400
- Engagement/wedding rings – up to $2,000
- Books and published materials – up to $250
- One watch – up to $150
- One typewriter, one computer, one bicycle, one sewing machine, a family bible, a burial plot, one shotgun or one rifle or one pistol. The total fair market value not higher than $1,000.
Retirement and Pensions Bankruptcy Exemption
Arizona bankruptcy exemptions also protect IRAs, Roth IRAs, and tax-exempt retirement accounts including:
- 401(k)s
- 403(b)
- profit-sharing and money purchase plans
- SEP
- SIMPLE IRAs
- defined benefit plans
Moreover, the pensions of police officers, teachers, and other government employees are exempt. The same goes for public/welfare benefits.
Wages and salary Bankruptcy Exemption
Seventy-five percent of the debtor’s disposable earnings are exempt. According to Arizona guidelines, “Disposable earnings means that remaining portion of a debtor’s wages, salary or compensation for his personal services, including bonuses and commissions, or otherwise, and includes payments pursuant to a pension or retirement program or deferred compensation plan, after deducting from such earnings those amounts required by law to be withheld.”
Alimony and Child Support Bankruptcy Exemption
Arizona bankruptcy exemption also covers the money received as alimony or child support from a former spouse. However, this only applies to the receiver and not the payer.
Tools of Trade
Tools and equipment used for commercial purposes are exempt up to a total worth of $5,000. For a complete list of qualified exemptions, you may refer here.
The Arizona Bankruptcy Means Test
For many people, Chapter 7 bankruptcy is a good option for getting rid of most of their unsecured debts. Why? Because just in case the money from selling all your non-essential possessions is not enough to your payables, the rest of the debt gets discharged, and you can start again on a clean slate.
As good as that may sound, not everyone is qualified to file for Chapter 7. The eligibility is based on the debtor’s income for the last six months, the household size, and where you live. Those who earn below the state median automatically qualify. If your income exceeds the limit, you will have to take the means test to determine whether you’re entitled to a Chapter 7 discharge or need to convert to another chapter of the bankruptcy code.
The Arizona bankruptcy means test can be both inaccurate and complicated. Thus, it is best to seek the help of a qualified Arizona bankruptcy attorney. The attorney will help you determine your Chapter 7 eligibility and deal with other bankruptcy-related matters.
One other thing to consider is how much does it cost to file bankruptcy in Arizona. The cost to file bankruptcy is $313 for a Chapter 13 bankruptcy and $338 for a Chapter 7 bankruptcy.
Alternatives to Chapter 7 Bankruptcy
Should you find yourself unable to qualify for a Chapter 7 discharge, know that it is not your only escape. Here are other possible options to look into:
Chapter 13 Bankruptcy
Chapter 13 bankruptcy Arizona may be a good option for those whose incomes disqualify them from chapter 7 but require debt relief. If you choose to take this route, all your debt obligations will be consolidated. You’ll have to pay for them through a revised yet more affordable monthly repayment plan.
Debt Settlement
Debt settlement is where a third party agency tries to negotiate your debt for a lump sum of about half of what you originally owe. If, for example, you owe your credit card company $10,000, the debt settlement company will try to negotiate that down to $5,000. Be wary, though, as attractive as this option may sound, it can cause your consumer credit score to slip southward.
Debt management
The debt management option may work best with credit card debts. Here, the debt management company will try to negotiate with your credit card company to reduce your interest rate — let’s say, for example, from 20% down to 10%. You can also enroll in a debt management program or explore your options with non-profit agencies offering credit counseling services.