In today's turbulent economic climate, many people are suffering financially. Newscasters report daily on the dismal U.S. economy discussing stock market drops and government deficits. Individually, people are struggling to make mortgage payments and are losing their homes to foreclosure, which is an especially prevalent reality in Arizona.
Those without jobs find themselves increasingly dependent on credit cards as unemployment runs out. Credit card debt is often overwhelming and hard to pay off. Even those lucky enough to still have jobs can easily find themselves buried in debt because of an unexpected financial burden, such as a medical emergency. To add insult to injury, debt collectors constantly hound those who have fallen behind on their bills.
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However, there is an option available for people overwhelmed by debt in Arizona: Chapter 7 bankruptcy. Once a person files for bankruptcy, all legal actions against them are stayed, which gives a debtor time to breathe and actually figure out how to get back on their feet.
However, one thing people considering bankruptcy are concerned about is whether or not they are going to lose everything during the bankruptcy process especially their homes.
Federal Bankruptcy Exemptions
Federal bankruptcy law expressly permits a Chapter 7 debtor, in addition to debtors under other Chapters, to exclude certain property from their bankruptcy estate. Thus, debtors are able to keep the property after filing for bankruptcy these exclusions are more commonly known as exemptions.
Section 522 of the Federal Bankruptcy Code outlines the exemptions available to a debtor. However, one important provision in this exemption statute states that a debtor may choose the federal exemption list "unless the State law that is applicable to the debtor...specifically does not so authorize." This provision gives individual states the option to opt-out of these federal exemptions and create their own, which most states have done. Courts have time and time again held that these state-by-state variations to the federal law are constitutional.
Arizona Opt-Out Provision & Homestead Exemption
Arizona, like most states, has elected to opt-out of the exclusive federal exemption list. Arizona's opt-out statute specifically states, "[I]n accordance with 11 USC 522(b), residents of this state are not entitled to the federal exemptions provided in 11 USC 522(d). Nothing in this section affects the exemptions provided to residents of this state by the constitution or statutes of this state."
Accordingly, those filing for Chapter 7 bankruptcy in Arizona are not restricted by federal exemptions as Arizona's exemptions specifically enumerate what property will be excluded from the bankruptcy estate most notably the homestead exemption which protects a debtor's home.
Under Arizona's homestead exemption, debtors are able to keep their homes following their bankruptcies up to a value of $150,000. The specific property interests exempted under Arizona's homestead exemption include:
• Real property upon which there is a house in which the debtor resides
• One condo or cooperative in which the debtor resides
• A mobile home in which the debtor resides
• A mobile home in which the debtor resides, plus the land that the mobile home is located on
This homestead exemption in Arizona can be used on only one property, even if the debtors are a married couple and own multiple properties. In addition, if the exempted property is sold, voluntarily or involuntarily, the debtor automatically has an interest in the cash proceeds of the sale, up to the $150,000 limit.
How Arizona Courts Interpret the Homestead Exemption
Arizona courts will protect a debtor's right to his or her home. In fact, when interpreting the homestead exemption, the Arizona Supreme Court has stated that "the fundamental purpose of the homestead law is to protect the family against the forced sale of home property from certain creditors, and, to further this purpose, the homestead laws should be interpreted liberally to advance the objectives of the statutes." With this objective in mind, Arizona Bankruptcy Courts have even protected motor homes and RVs under Arizona's homestead exemption.
Contact an Attorney
In today's world, it is easy to fall behind on bills when major life events occur such as losing a job or an unexpected medical emergency. Filing for bankruptcy is nothing to be ashamed of, as these laws were created to help people. If you find yourself in over your head in debt, contact an experienced bankruptcy attorney in your area today to protect your property and determine what the best option is for you.
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