Exemptions are important in bankruptcy cases. If property is “exempt”, it means the debtor may keep the property and does not have to turn it over to the bankruptcy trustee. All property- even property the debtor intends to keep- must be listed on the debtor’s bankruptcy schedules. A debtor claims property as “exempt” on the bankruptcy form called Schedule C- Property Claimed as Exempt. Federal bankruptcy law states a debtor may “exempt” some property under federal law or under the laws of the debtor’s home state. Arizona requires its residents to use state law exemptions, instead of federal exemptions. Thus, debtors filing bankruptcy in Arizona are allowed the exemptions in the Arizona statutes and federal non-bankruptcy statutes.
On the top of Schedule C, a debtor claiming Arizona exemptions should check the second box next to 11 U.S.C. § 522(b)(3). 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. Arizona residents may claim the exemptions made available by Arizona law only if they lived in Arizona for all of the two years before the bankruptcy filing. If the debtor did not live in Arizona for all of those two years, then the debtor must claim the exemptions provided by the state where the debtor lived 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). 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). Legal counsel especially must be consulted if the debtor was not an Arizona resident for all of the two years before filing bankruptcy because that analysis can become very complicated and can have an enormous impact on your Chapter 7 bankruptcy case in Arizona. Here are some of the more common exemptions in Arizona:
Homestead: Interest in real property upon which debtor’s house sits, condominium or cooperative, mobile home, or mobile home in which debtor resides plus the land upon which the mobile home is located in the amount of $150,000. May not be doubled by husband and wife.
Personal Property: Household furniture and furnishings, household goods, including consumer electronic devices, and household appliances personally used by the debtor or a dependent of a debtor and not otherwise specifically prescribed in this chapter in an amount not greater than $6,000 (total fair market value). Debtor’s library, including books, manuals, published materials and personal documents with a fair market value not greater than $250. One watch with a fair market value not greater than $150. One typewriter, one computer, one bicycle, one sewing machine, a family bible, a burial plot, one shotgun or one rifle or one pistol, with a total fair market value not greater than $1,000.
Equity in one car not greater than $6,000. If debtor (or debtor’s dependent) is physically disabled, the fair market value of the motor vehicle must not be greater than $12,000. (Equity is the fair market value of the motor vehicle minus debt to secured creditor). Professional prescribed prostheses for debtor or a dependent of the debtor, including a wheelchair. Life insurance proceeds not greater than $20,000 if payable to surviving spouse or child upon the life of a deceased spouse, parent or legal guardian.
Money/Benefits: Minor child’s earnings unless debt to be discharged was contracted for the special benefit of the minor child. Child support or spousal maintenance received pursuant to a court order. All money, proceeds or benefits from employer health, accident, disability insurance benefits or similar employer benefit program. All proceeds from destruction of or damage to exempt property and all proceeds or benefits arising from fire or other insurance on exempt property. Cash surrender value of life insurance policies were 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.
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. Any claim for damages for levy upon or sale under execution of exempt personal property or for wrongful taking or detention of exempt personal property. Does not apply to annuities, nor to cash surrender values increased by premium payments made within two years in excess of the average annual premium paid during the previous three years. Bank deposit not to exceed $300.
This sum is not exempt from normal service charges assessed by the bank holding the funds. Benefits from the ERISA-qualified retirement plan or deferred compensation plan except those amounts contributed within 120 days before a debtor files for bankruptcy. Does not apply to an alternate payee under a qualified domestic relations order. Does not apply to assets of bankruptcy proceedings filed before July 1, 1987. Not exempt from orders resulting from a judgment for child support arrearages or child support debt. Prepaid rent, including security deposits as provided in §33-1321(A) for debtor’s residence, not exceeding the lesser of $2,000 where the debtor has not claimed a homestead exemption. Not exempt from orders resulting from a judgment for child support arrearages or child support debt. Group life insurance policy proceeds. Library and philosophical and chemical or other apparatus used for instruction of youth in any university, college, seminary of learning, or school.
Tools And Equipment: Tools, equipment, instruments and books (including telephone numbers, client or customer contact information, or marketing tools such as websites, domain names or any other intangible work product) in the possession of debtor or debtor’s spouse primarily used and necessary to carry or develop the commercial activity, trade, business or profession of debtor or debtor’s spouse, with a fair market value not greater than $5,000.
Tools DO NOT include a motor vehicle primarily used for personal, family or household purposes such as transportation to debtor’s employment. Farm machinery, utensils, implements of husbandry, feed, seed, grain and animals belonging to debtor, with a value not to exceed $2,500, where debtor’s primary income is derived from farming. All arms, uniforms and accoutrements required by law to be kept by a debtor.
Wages/Salary/Pension: Seventy-five percent (75%) of disposable earnings. Only one-half of disposable income may be claimed exempt in response to an order for support of any person. These exemptions do not apply in a Chapter 13 bankruptcy filing. “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. Many police officer, teacher, and other government employee pensions are also exempt. Most public benefits (welfare) are also exempt
Food And Fuel: All food, fuel and provisions for debtor’s individual or family use to last up to six months.
Clothing: All wearing apparel used primarily for personal, family or household purposes with a fair market value not greater than $500.
Musical Instruments: All musical instruments for debtor’s individual or family use with a total fair market value not greater than $400.
Animals: Domestic pets, horses, milk cows and poultry with a fair market value not greater than $500.
Jewelry: All engagement and wedding rings with a total fair market value not greater than $2,000.
There are other exemptions, too, but these are the main ones that apply to most people. Your bankruptcy attorney will carefully examine your situation to determine whether anything you own or have an interest in is not exempt and therefore can be seized by creditors or the bankruptcy trustee in your Chapter 7 Arizona bankruptcy case. It is important to remember that the above exemptions apply only to Arizona residents. Also, as mentioned above, if you have not lived in Arizona for more than two continuous years, you may need to use the exemptions of a different jurisdiction or even the federal exemptions (if no state’s exemption applies or if the state that does apply for permits its residents to elect either that state’s exemptions or the federal exemptions; Arizona permits no such elections because all Arizona residents must use the Arizona exemptions.
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