Most people keep everything they have in a Chapter 7 Bankruptcy Case in Arizona, which is why most bankruptcy cases are categorized as "no asset" cases.
Bankruptcy trustees compare the list of exempt assets in Arizona with the list of assets on the schedules of the debtor, and as long as they match, the debtor keeps everything, including non-exempt items that are worthless or over-encumbered.
If you have a jet-ski, or a three-wheeler, or a toy hauler, those items are not exempt, and if they're free and clear and you haven't sold them pre-petition, the trustee will take them and auction them off, unless you buy them back from the trustee.
And sometimes they'll accept payments.
And my clients have had lots of luxury items over the years, from Rolexes to Hummers to Airplanes, but none have yet had personal submarines.
You've looked at the memo from a smart, experienced bankruptcy trustee. And you know darn well he's right about one thing: furniture has to be itemized, not lumped (some bankruptcy trustees have told me they would prefer lumping in their cases, but you need to assume you'll draw a non-lumping bankruptcy trustee).
We know this partly because I've written about it so frequently in the past; for instance, I talk forever about how to fill out the schedules, because that's an important point.
But then we get to the tools of the trade exemption statute in Arizona, and the precise language of that statute.
And when I worked for Chief Bankruptcy Judge Caldwell he told me that analysis always began with the language of the statute.
Can you guess what I'll be saying to our current U.S. Bankruptcy Judges if we get an objection to exemption on the tools of the trade statute applied to a computer?
We'll discuss this further. As soon as my brilliant associate Nina the Unpronounceable gets a Round Tuit, I'll start posting the cases which analyze the tools of the trade exemption in Arizona, which should be construed liberally in favor of the debtor. Or you can just look 'em up on fastcase.com, which is easy to use and...fast!
I probably won't bother posting the long line of cases on whether an automobile gets to be exempted in Arizona as a tool of the trade (realtors always ask about that), because that issue was resolved by an amendment to the exemption statute itself. The answer, on an unmodified automobile, is no.
And there will be a contest for bankruptcy attorneys in Arizona: if you think you've done a nice job of responding to the computer exemption objection, email me, and I'll post it here on my blog!
The first-place winner gets a Round Tuit!
As well as a place of honor on my Bankruptcy Blog!
Okay, I'm getting a little too excited for my advanced age and sluggish blood circulation.
But I just had one of those moments of clarity about Opt-Out Statutes and Bankruptcy Law in general.
There was never the slightest reason for them, and they've never done anybody the slightest bit of good.
You may ask why I haven't mentioned this before, in any of my 600 bankruptcy blog posts.
Well, it's because I was too dumb! Actually, that's pretty close to the truth.
I was still a law clerk for the Chief Bankruptcy Judge here in the District of Arizona Bankruptcy Court when I first ran into the opt-out statute for Arizona, and it was not ambiguous, and there was nothing about it that required my bankruptcy law research skills, so it escaped my notice.
Later, it being settled law, it escaped my focus because it seemed to me that there was nothing I could do about it; after all, I was just a simple, back-country Arizona Bankruptcy Lawyer!
But now I realize that I have built a tool that can reduce suffering among the downtrodden debtors of the United States!
I really built this bankruptcy blog so that I could have the best educated bankruptcy clients in the United States, and it's been a real hoot to write about bankruptcy law and practice; this bankruptcy blog has been a labor of love.
But now I see that there is more suffering than there needs to be in Arizona. And in all the opt-out states of the United States!
So do this, gentle reader, wherever you may be.
Understand that your brother, your son, your sister and your daughter will be filing a bankruptcy sometime soon, because this is a depression, not a recession.
We're running at a 20% real unemployment rate, and you know that just based on the number of your friends who are out of work.
So do this, to reduce the suffering of bankruptcy debtors everywhere: tell your state legislators to repeal your home state's opt-out provision, and give bankruptcy debtors the right to choose between the Federal Bankruptcy Exemptions and your state bankruptcy exemptions.
It's the right thing to do, and this is the right time.
If not now, when? And if not you, then who will save them from that needless suffering?
I'm talkin' to you! Call your legislator now, and kick his behind (or her behind; I'm an equal opportunity legislator kicker, after all) to get all the opt-out statutes in the United States repealed!
The trustee who is appointed in your bankruptcy case does not usually want to take away your dogs.
Dogs eat.
Trustees don't like assets that eat, defecate, or die. Or bite. Did I leave out bite?
I remember a case many years ago in which a debtor had a very valuable wolf/dog cross, and properly listed it at a value far above the pet exemption in Arizona.
The trustee did not want to take custody of, feed, shelter, or attempt to sell said wolf hybrid.
Now, is it possible that your bankruptcy trustee will want your dog, even though a trustee has never wanted a dog in one of my cases in my first thirty years of experience filing bankruptcy cases in Arizona, and I've never seen a case in which a dog was taken away from a debtor because it was too valuable.
Sure. It's possible.
And it's possible that Cindy Crawford will grab a fast plane, come to Arizona during Monsoon Season, and beg me to run away with her. You know?
It could happen! Actually it happened yesterday, but I told Cindy to come back, because I was little tired. Lotta bankruptcy cases in Arizona, you know?
In the same way, it's possible that the trustee will want your dog.
Now, if your dog is a Best of Show Winner at Westminster, the trustee might want your dog, or you might have to pay your Arizona bankruptcy trustee in order to keep your dog, which is far more valuable than the Arizona Exemption for pets; so let me know if you have a Westminster Best in Show, okay?
If your dog looks like these at the Westminster Dog Show, for instance, we may need to talk about the Arizona pet exemption in Arizona.
Otherwise, relax about the dog; the trustee hates assets that eat!
Now, horses can sometimes be an issue, but I'll talk about that later.
I Wish I Had a Staples Easy Button for Filing Bankruptcy Cases in Arizona. But I Don't.
Bankruptcy is a process.
It was lot faster in Italy, where the word came from: "banco rotto", or broken bench. If you did business in the city square, on a banco (bench), and you didn't pay your creditors, they broke your bench.
And maybe your kneecaps; history is silent on that point.
Nowadays, the process involves neither breaking your bench, nor your kneecaps.
It is, however, a process.
A substantial number of people, and very smart and decent people at that, just want their bankruptcy to be over. "I Just Want This Bankruptcy to be Over!"
Sadly, they often say that the first time they meet with me, and it just doesn't work that way.
Bankruptcy involves a bunch of decisions that must be made by the client, not the lawyer; and that may involve educating the client, whether you want to be educated or not. Sorry.
I can't decide for you whether you want to sell your non-exempt car to buy food for your kids, or whether you want to give it to the bankruptcy trustee after you file. You have to decide that.
I can't file a bankruptcy for you unless you list your debts and your assets and your transactions; all of 'em.
Can't.
Would love to.
Can't.
You, for your part, have to make a decision to file a bankruptcy, and for heaven's sake make that decision before you burn through your IRA or your 401(k), okay?
Okay?
And once you make that decision, you have to decide whether to hire a bankruptcy lawyer in front of me or a frontal lobotomy.
Sorry, wrong topic; but close!
But there is a pretty involved decision tree involved in trying to get you a decent result in your Chapter 7, Chapter 13, Chapter 11 or Chapter 12 in Arizona.
I haven't done any Chapter 9 Bankruptcy cases yet, but I look forward to it. Probably be interesting.
But in your case, after you decide to file, you have to decide whether you want to file now, or to wait another six months so that the preference payment you made to mom won't be a problem for mom. And you have to decide to wait at least 90 days after your last substantial use of your credit cards.
And don't get cute. The bankruptcy trustees in Arizona don't like cute. Neither do Banks.
So don't try to rack up your credit cards to the maximum prior to filing and then wait 91 days to file. Or 92 or 93. The 90 day period is just a presumption. You can't rob from the bank like Jessie James and expect a loving reception at the First Meeting of Creditors or the 2004 Exam scheduled for you by the bank lawyers.
On the other hand, if you're an honest debtor with overwhelming debt, and sleepless nights, and endless phone calls from credit card companies who tell you scary things so you'll have sleepless nights, then you probably have a bankruptcy in your future.
In specific, if your unsecured debt is about as much as you make in a year, there's an excellent chance that you'll be filing a bankruptcy of some sort, because the numbers just don't work.
Now we get to figure out how good a result we can get for you.
But please don't wait too long to come see me; I'm a bankruptcy lawyer, but I don't like surplus suffering. And you'll be very angry with yourself if you blow through your 401(k) and your IRA prior to filing your bankruptcy case, and sadly, once you've made that specific mistake, I can't fix it for you.
I can file a bankruptcy case for you, although you may have to wait because you messed up your means test calculation by pulling money out of your retirement accounts.
But we'll figure that out when you drop in; and pretty please with sugar on it, do your homework assignments before you come in, because then you'll be able to answer my questions and we can get you closer to the bright, happy world of the bankruptcy discharge in Arizona!
And because I'm a bankruptcy attorney in Arizona, no, that's not a guarantee. As you'll recall, I don't guarantee that the sky is blue or the grass is green.
Because I'm a bankruptcy specialist in Arizona, and this ain't my first rodeo.
p.s. I don't want you to have the feeling of wind in your hair to make you happy; I want you to survive the bankruptcy process with as little pain as possible, and to keep as many of your assets as possible, and discharge as many debts as possible.
And if I have to make you suffer a little to get there, oh, well. Kinda like being a dentist, I suppose.
But I wish they made bankruptcy novacaine for the poor debtor.
And no, you can't declare bankruptcy by saying the word out loud! The word "bankruptcy" is not magical in the same way as the word "Candyman", for instance.
Frequent readers will recall that I really, really like the website of the District of Arizona Bankruptcy Court.
I'm particularly fond of the fact that they took the trouble to post the Arizona Revised Statutes exemptions and several other exemptions in a fairly easy to read form for everybody to see; and I like it that the District of Arizona Bankruptcy Court gives a plug to Board Certified Bankruptcy Specialists!
On the other hand, some of my readers have complained that it's hard to track down, and that they have trouble finding it.
Therefore, I'm going to try to cut and paste it below. Bear in mind that it may change from time to time, and you should always go back to the original to see if the information is still current. I have no control over the frequency of changes to that website, of course.
NOTE: because I'm a computer dummy, I'm unable to paste the list here in it's original format. Because the format is different, I STRONGLY advise you to look at the original version if you can track it down. It's a pdf, you see, so it's hard for me to manipulate.
But here's my first cut at the ball. Enjoy! But if you get confused because of the format, go to the original, guys!
p.s. I found a site called scribd.com which permits bloggers to more easily show their readers the contents of pdf files, so I'm going to try to post another easier to read version of the exemptions below:
Neither the Bankruptcy Court nor the Clerk’s office can give you legal advice. This pamphlet is not intended to give you legal advice, and is not a substitute for the legal advice specific to your situation that you should obtain from a qualified attorney. To find an attorney who has been certified as a specialist in bankruptcy, you may go to the State Bar of Arizona website at www.azbar.org, click on “Legal Resources” in the top menu bar, then click on “Find a Certified Specialist,” and then click on “Bankruptcy.”
This pamphlet addresses only the filing of bankruptcy cases by individuals and married couples. It does not address the very different chapters, law and rules that apply to bankruptcy cases filed by corporations, partnerships and LLCs (which, for example, cannot claim any property as exempt). If a corporation, partnership or LLC is considering filing bankruptcy, it will absolutely need a lawyer because the law of this Circuit is that such organizations can be represented in court only by a lawyer, not by a nonlawyer individual such as the president of the corporation.
One of the schedules of assets and liabilities which will be filed by the individual debtor is a schedule of “exempt” property, Schedule C. 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. Check the second box on the top of Schedule C, because Arizona law does not allow debtors to claim the exemptions provided by 11 U.S.C. § 522(d).
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 statutes.
As of October 17, 2005, Arizona residents may claim the exemptions made available by Arizona law only if they were domiciled in Arizona for all of the two years before the bankruptcy filing. 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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Asset
Exemption Description
Statutory Provision
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.
Effective as of October 17, 2005, the amount of the homestead may be limited to $125,000 if it was purchased by the debtor within 1,215 days before filing bankruptcy. See Bankruptcy Code § 522(p) and consult a lawyer if this applies to you.
A.R.S. § 33-1101
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PERSONAL PROPERTY
Husband and wife may double all personal property exemptions
Household furniture, furnishings and appliances personally used by debtor in an amount not to exceed $4,000 (fair market value): – 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 department 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 debtor and 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
A.R.S. § 33-1123
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All food, fuel and provisions for debtor’s individual or family use to last up to six months
A.R.S. § 33-1124
All wearing apparel used primarily for personal, family or household purposes with a fair market value not to exceed $500
A.R.S. § 33-1125(1)
All musical instruments for debtor’s individual or family use with an aggregate fair market value not to exceed $250
A.R.S. § 33-1125(2)
Domestic pets, horses, milk cows and poultry with a fair market value not to exceed $500
A.R.S. § 33-1125(3)
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All engagement and wedding rings with a fair market value not to exceed $1,000
A.R.S. § 33-1125(4)
Debtor’s library, including books, manuals, published materials and personal documents not with a fair market value not to exceed $250
A.R.S. § 33-1125(5)
One watch with a fair market value not to exceed $100
A.R.S. § 33-1125(6)
One typewriter, one bicycle, one sewing machine, a family bible, a burial plot, one shotgun or one rifle or one pistol, with a fair market value not to exceed $500
A.R.S. § 33-1125(7)
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One car with a fair market value not to exceed $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)
Professional prescribed prostheses for debtor or a dependent of the debtor, including a wheelchair
A.R.S. § 33-1125(9)
MONEY , BENEFITS OR PROCEEDS
Life insurance proceeds not to exceed $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)
Minor child’s earnings unless debt to be discharged was contracted for the special benefit of the minor child.
A.R.S. § 33- 1126(A)(2)
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Child support or spousal maintenance received pursuant to a court order.
A.R.S. § 33- 1126(A)(3)
All money, proceeds or benefits from employer health, accident, disability insurance benefits or similar employer benefit program.
A.R.S. § 33- 1126(A)(4)
All 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)
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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) and A.R.S. § 20-1131(D) (effective April 20, 2005)
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) (effective April 20, 2005)
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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.
A.R.S. § 33- 1126(A)(8)
Bank deposit not to exceed $150. This sum is not exempt from normal service charges assessed by the bank holding the funds.
A.R.S. § 33- 1126(A)(9)
Benefits from 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.
A.R.S. § 33-1126(B)
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Prepaid rent, including security deposits as provided in § 33-1321(A) for debtor’s residence, not exceeding the lesser of $1,000 or 11⁄2 month’s rent where debtor has not claimed a homestead exemption. Not exempt from orders resulting from a judgment for child support arrearages or child support debt.
A.R.S. § 33-1126(C)
Exemptions listed in § 33-1126 are not exempt property from orders resulting from a judgment for child support arrearages or child support debt
A.R.S. § 33-1126(D)
Group life insurance policy or proceeds
A.R.S. § 20-1132
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SCHOOL EQUIPMENT
Library and philosophical and chemical or other apparatus used for instruction of youth in any university, college, seminary of learning, or school
A.R.S. § 33-1127
FIRE FIGHTING EQUIPMENT
All fire engines, hooks and ladders, with the carts, trucks, carriages, hose, buckets, implements and apparatus, all furniture and uniforms of any fire company or department formed under Arizona law
A.R.S. § 33-1128
PUBLIC PROPERTY
All court houses, jails, public offices, buildings, lots, grounds and personal property, the fixtures, furniture, books and papers and appurtenances belonging and pertaining to the jail and public offices belonging to any county or any city of this state and all cemeteries, public squares, parks and places, public buildings, town halls, markets, buildings for the use of fire departments and military organizations, and the lots and grounds thereto belonging and appertaining, owned or held by any town or city or dedicated by such town or city to health, ornament or public use, or for the use of any fire or military company organized under Arizona law
A.R.S. § 33-1129
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TOOLS AND EQUIPMENT
Tools, equipment, instruments and books of debtor or debtor’s spouse primarily used and necessary to carry on the commercial activity, trade, business or profession of debtor or debtor’s spouse, with a fair market value not to exceed $2,500. Tools does not include a motor vehicle primarily used for personal, family or household purposes such as transportation to debtor’s employment.
A.R.S. § 33-1130(1)
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
A.R.S. § 33-1130(2)
All arms, uniforms and accoutrements required by law to be kept by a debtor
A.R.S. § 33-1130(3)
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W AGES, SALARY, COMPENSA TION
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.
A.R.S. § 33-1131(B), (C), (D)
W AIVER
Waiver of exemption rights void and unenforceable unless specifically provided in § 33-1122 and when done with notice
A.R.S. § 33-1132
PENSIONS
Arizona Board of Regents members – benefits, annuities and employee and employer contributions established by the Arizona Board of Regents pursuant to A.R.S. § 15-1628
A.R.S. § 15-1628(I)
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IRAs
In re Herrscher, 121 B.R. 29 (D. Ariz. 1990)
Police Officers Pension. Exemption does not apply to court orders which are the result of a judgment for arrearages of child support or for a child support debt.
A.R.S. § 9-931
Fire Fighters’ Relief and Pension Fund and distributive portions therefrom. Exemption does not apply to court orders which are the result of a judgment for arrearages of child support or for a child support debt.
A.R.S. § 9-968
Arizona State Retirement System – state employee’s survivor benefits before retirement
A.R.S. § 38-762
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Public Safety Personnel Retirement System – benefits, employee contributions or employer contributions, including interest, earnings and all other credits
A.R.S. § 38-850(C)
Arizona Rangers’ Pension
A.R.S. § 41-955
PUBLIC BENEFITS
Unemployment compensation benefits are exempt where proceeds are not commingled with other funds, except debts incurred for necessaries furnished to the individual or his or her spouse or dependents during the time when the individual was employed
A.R.S. § 23-783
Workers’ compensation benefits
A.R.S. § 23-1068
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Welfare assistance benefits
A.R.S. § 46-208
Federal Non-bankruptcy Exemptions
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RETIREMENT BENEFITS
Government employees’ retirement payments
5 U.S.C. § 8346(a)
Annuities paid to members of the armed services, based on retirement or retainer pay
10 U.S.C. § 1440
Foreign service employees – Benefits, annuities, or payments to survivors of foreign service employees under the Foreign Service Retirement and Disability System
22 U.S.C. § 4060(c)
Special pensions awarded to persons on the Army, Navy, Air Force and Coast Guard Medal of Honor roll
38 U.S.C. § 1562(c)
Payments of benefits due or to become due under any law administered by the Veterans’ Administration
38 U.S.C. § 3101
Retirement annuities paid pursuant to the Railroad Retirement Act of 1974, 45 U.S.C. §§ 231 et seq.
45 U.S.C. § 231m
Social security benefits
42 U.S.C. § 407
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Central Intelligence Agency retirement benefit payments
50 U.S.C. § 403
SURVIVORS’ BENEFITS
Military survivor annuities paid pursuant to the Survivor Benefits Plan
10 U.S.C. § 1450(i)
Annuities paid to survivors of a Justice or judge of the United States, a Director of the Administrative Office of the United States Courts, a Director of the Federal Judicial Center, or an administrative assistant to the Chief Justice of the United States.
28 U.S.C. § 376(n)
Benefits paid to surviving spouses of lighthouse service personnel
33 U.S.C. § 775
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DEATH & DISABILITY BENEFITS
Disability and death benefits paid to federal government employees as a result of work injuries
5 U.S.C. § 8130
75% of earned but unpaid wages
15 U.S.C. § 1673
Death and disability payments paid pursuant to the Longshoremen’s and Harbor Workers’ Compensation Act
33 U.S.C. § 916
Seamen’s clothing
46 U.S.C. § 1110
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Seamen’s wages exempt except from execution other than for the support of a spouse or minor children
46 U.S.C. § 1111(a)
Compensation paid for injury or death resulting from a war risk hazard under the War Hazards Compensation Act, 42 U.S.C. § 1701 et seq.
42 U.S.C. § 1717
MONEY , BENEFITS, PROCEEDS
A United States service member’s deposits in a savings institution while the depositor is on permanent duty outside of the United States
10 U.S.C. § 1035(d)
Payments of benefits due or to become due under Servicemen’s Group Life Insurance or Veterans’ Group Life Insurance
38 U.S.C. § 770(g)
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Benefits due or to become due under servicemen’s group life insurance
38 U.S.C. § 1970(g)
Veterans’ benefits
38 U.S.C. § 5301(a)
Exempts from offset by federal government agencies an amount not to exceed $9,000 owing to a debtor under the Social Security Act, the Black Lung Benefits Act, or laws administered by the Railroad Retirement Board.
31 U.S.C. § 3716(c)(3)(A)(i)
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The Secretary of Treasury “shall exempt from administrative offset ... payments under means-tested programs when requested by the head of the respective agency,” and the Secretary is given discretion to exempt from administrative offset such other payments that are requested for exemption by the “head of a payment certifying agency.”
31 U.S.C. § 3716(c)(3)(B)
Railroad workers’ unemployment insurance benefits
45 U.S.C. § 352(e)
PERSONAL PROPERTY
Personal property exempted from levy for collection of federal taxes
26 U.S.C. § 6334
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Property of organizations designated by the President of the United States as being entitled to the privileges, exemptions, and immunities provided by the International Organizations Immunities Act (22 U.S.C. §§ 288, et seq.)
28 U.S.C. §§ 1609-1611
MISCELLANEOUS
Credits given to members of the Klamath Indian tribes in Oregon by the Secretary of the Interior
25 U.S.C. §§ 543, 545
Money accruing from any lease or sale of lands held in trust by the United States for any Indian.
25 U.S.C. § 410
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Homesteads purchased out of the trust or restricted funds of individual Indians from taxation and title to such homesteads shall be held subject to restrictions against alienation or encumbrance except with the approval of the Secretary of the Interior.
There are restrictions on the taking of security interests (pledges) that show up in the Bible, particularly in Deuteronomy and Ezekiel. Generally, if you take a cloak as a pledge, you need to return it before nightfall, because it gets cold on the desert (long before I was a bankruptcy lawyer here in Phoenix, Arizona, it got very chilly at night; then we paved the desert and put down a lot of blacktop, and that got fixed!). And you can't take a widow's cloak as security, period. And millstones are another area of limitations on security interests.
On the other hand, the breaking of any laws, ancient or modern, has consequences. What are the consequences for failing to observe the exemption laws of the Bible? Well, according to Ezekiel, and you should read Chapter 24, verses 10 through 13 to get the flavor, "...he will surely be put to death;" if he does not restore a pledge.
Modern secured lenders should consider how easy they have it; our limitations on secured lending are much less severe.
The mere idea of filing a bankruptcy in either Chapter 7, Chapter 13, Chapter 11 or Chapter 12 scares people blue. Most don't worry about Chapter 9 or 12 because they don't qualify.
But the first thing that most people say when they meet for the first time with a bankruptcy lawyer initially is, "I really don't want to do this."
I always point out that the same people who file a bankruptcy for fun are the ones who line up at their dentists for a recreational root-canal.
NOBODY wants to file a bankruptcy. Virtually everybody sees bankruptcy as a failure, and in many ways it is at least an admission of failure. And you need to admit that what you're doing isn't working before you can move on to succeed.
When I started my practice after working a couple of years for Chief Bankruptcy Judge Caldwell and Bankruptcy Judge Maggiore, lawyer advertising had just become legitimate because of the Supreme Court decision in the Bates vs. State Bar of Arizona case.
So I walked out and took out a half-page ad in the Yellow Pages, and I was the first bankruptcy lawyer in Arizona to have such an ad.
I coined the slogan, "Not a failure, but a fresh start!" back in 1982 or thereabouts.
And lots of people dropped in to talk about it.
A lot has changed since then, but one thing has not.
Decent folks don't ever WANT to file a bankruptcy, any more than a kid with pneumonia wants a shot of penicillin.
But in the same way that when a kid with pneumonia needs penicillin, there are times when a decent person has to say, "Yup, I have a broken bench, and I need penicillin. I mean a bankruptcy."
Nobody EVER wakes up in the morning and says, "I want to be a bankrupt today!"
For one thing, the technically correct term since the New Code of October 1, 1979, is "debtor", not bankrupt. The legislative history to the New Code (now the really old and frequently patched Code) explains that Congress changed the word from "bankrupt" to "debtor" to reduce the stigma that came with filing.
Congress should have chosen almost any other word at all but debtor. Wingnut, rutabaga, or Sasquatch would have been better choices. The word debtor shows up all though the law of secured transactions and banking law, where it can mean very different things than bankrupt, which had the advantage of precision: you knew exactly what it meant.
Which is surprising, because the word "bankruptcy" itself comes from the phrase "broken bench", because when a lender or money changer in Venice in the Middle Ages (who sat in the public square at "bancas", or benches) couldn't meet his financial obligations, his creditors broke his "banca". Broken bench. Banca Rupta. Bankrupt.
I always liked that story.
But I would like it better if potential debtors were less frightened. It tends to make them wait too long to get help, so they may obtain a sub-optimal result. The classic case is an individual with overwhelming credit card debt who gets a huge debt consolidation loan, which is structured so that it becomes a mortgage on their otherwise-exempt homestead equity.
And then if they can't pay the mortgage, they lose their house. Bad decision, in retrospect.
Or the poor devil who scrapes up every nickel he can find to settle a million dollar business debt for $100,000. And doesn't get with his cpa, so he doesn't know that he just generated a non-dischargeable tax debt of a few hundred thousand dollars. That is, he traded a dischargeable debt for a non-dischargeable debt. At a massive interest and penalty rate.
Oh, well. I've heard it said that good decisions are based on experience. Which is based on....bad decisions!
Nothing in the foregoing is intended to be, or may be used as, legal advice. If you're drowning in debt, for heaven's sake go find a Martindale Hubbell AV rated Board Certified Bankruptcy Lawyer. Or Attorney. Or Specialist. At least he or she will have seen your problem before, and may even have a guess how to fix it. Like maybe with penicillin.
Because Arizona is an "opt-out" state, a debtor who files a Chapter 7 or Chapter 13 or Chapter 11 bankruptcy petition in Arizona is limited to the use of the Arizona Homestead Exemption, rather than the Federal Homestead Exemption located at 11 USC 522.
Frankly, that's good news. Because the Federal Homestead Exemption is miserly in the extreme and might permit you to exempt the equity in a doghouse. If it was a small doghouse.
The Arizona Homestead Exemption comes in at $150,000 equity in a house that's your principal residence (or other sorts of homestead). If you happen to own a bare piece of dirt worth $150,000 and you live in an apartment on the day you file a Chapter 7 bankruptcy, tough tomatoes! You won't be able to effectively claim an exemption under the Arizona Homestead Act on the bare dirt, and the bankruptcy trustee in the Chapter 7 case will be a very happy person.
The text of the statute (and it changes over time, so don't rely on my posting here for anything but the beginning of your educational process):
33-1101. Homestead exemptions; persons entitled to hold homesteads A. Any person the age of eighteen or over, married or single, who resides within the state may hold as a homestead exempt from attachment, execution and forced sale, not exceeding one hundred fifty thousand dollars in value, any one of the following: 1. The person's interest in real property in one compact body upon which exists a dwelling house in which the person resides. 2. The person's interest in one condominium or cooperative in which the person resides. 3. A mobile home in which the person resides. 4. A mobile home in which the person resides plus the land upon which that mobile home is located. B. Only one homestead exemption may be held by a married couple or a single person under this section. The value as specified in this section refers to the equity of a single person or married couple. If a married couple lived together in a dwelling house, a condominium or cooperative, a mobile home or a mobile home plus land on which the mobile home is located and are then divorced, the total exemption allowed for that residence to either or both persons shall not exceed one hundred fifty thousand dollars in value. C. The homestead exemption, not exceeding the value provided for in subsection A, automatically attaches to the person's interest in identifiable cash proceeds from the voluntary or involuntary sale of the property. The homestead exemption in identifiable cash proceeds continues for eighteen months after the date of the sale of the property or until the person establishes a new homestead with the proceeds, whichever period is shorter. Only one homestead exemption at a time may be held by a person under this section.
Sound good? Well, it would, except that it's not as simple as it seems.
And that's because there's a bankruptcy cap on homesteads that may be applicable, and that's located here:
11 usc 522 (p)
(p)
(1)Except as provided in paragraph (2) of this subsection and sections 544 and 548, as a result of electing under subsection (b)(3)(A) to exempt property under State or local law, a debtor may not exempt any amount of interest that was acquired by the debtor during the 1215-day period preceding the date of the filing of the petition that exceeds in the aggregate $125,000 in value in—
(A)real or personal property that the debtor or a dependent of the debtor uses as a residence;
(B)a cooperative that owns property that the debtor or a dependent of the debtor uses as a residence;
(C)a burial plot for the debtor or a dependent of the debtor; or
(D)real or personal property that the debtor or dependent of the debtor claims as a homestead.
(2)
(A)The limitation under paragraph (1) shall not apply to an exemption claimed under subsection (b)(3)(A) by a family farmer for the principal residence of such farmer.
(B)For purposes of paragraph (1), any amount of such interest does not include any interest transferred from a debtor’s previous principal residence (which was acquired prior to the beginning of such 1215-day period) into the debtor’s current principal residence, if the debtor’s previous and current residences are located in the same State.
Yes, you read that correctly. There's a cap on homesteads that applies (unless you're a family farmer, which would mean you'd probably be filing a Chapter 12) to purchases within a specific time period (1215 days prior to the date of filing the petition).
Arizona has it's own opinion on this issue, which discusses the effective date of the provision, and it's therefore probably less important now than it was when it was written. It's still a very well-written opinion on an issue of great importance to every Arizona debtor, the homestead exemption.
So here's the citation to the case, In re McNabb, 326 B.R. 785 (Bankr. D. Ariz. 2005). For what it's worth, I strongly agree with Judge Haines interpretation of the law.
Disclaimer: The bankruptcy information in this blog is not intended as a substitute for competent legal advice on bankruptcy law in Arizona by a board certified bankruptcy attorney (an attorney recognized by the Arizona Board of Legal Specialization as a Certified Specialist in Bankruptcy Law), and nothing in the foregoing constitutes legal advice; this blog is intended merely as one source of bankruptcy information about Chapter 7 Bankruptcy, Chapter 13 Bankruptcy, Chapter 11 Bankruptcy, and Chapter 12 Bankruptcy. Mind you, it doesn't hurt if the attorney you decide to retain has a Martindale-Hubbell AV rating.
This is a blog designed to direct folks to some resources they can read while considering the filing of a bankruptcy of any kind. I'll rely heavily on public sources like the District of Arizona Bankruptcy Court website because there's a mass of useful information there.
On the other hand, I plan to slice and dice it so it's potentially easier to understand. There's a lot of information there, and of course, the Bankruptcy Code and Rules themselves (even without the legislative history) look like slightly stunted phonebooks (if you're old enough to remember what a phonebook looks like).
The decision to file a bankruptcy (whether it's a Chapter 7 liquidation, a Chapter 13 Plan, or a Chapter 11 Reorganization for a business or individual) is a difficult one. On the one hand, the potential debtor is the subject of collection calls, trustee's sales and lawsuits, or some combination of the above. And there's a chance, if the potential debtor is married, that there's some friction in their marriage, because insolvency is rough on everybody.
I plan to emphasize information about Chapter 7s, because the vast majority of bankruptcy cases that are filed are Chapter 7 cases. And many Chapter 13s are converted to Chapter 7s, and most Chapter 11s turn into Chapter 7s.
NOTHING IN THIS BLOG CONSTITUTES LEGAL ADVICE. RESOURCES REFERRED TO HERE ARE NOT SUBJECT TO MY CONTROL, AND THEREFORE NO LIABILITY IS ACCEPTED FOR ERRORS IN MATERIALS REFERRED TO. THIS BLOG IS MERELY A POINTER IN THE DIRECTION OF SOURCES THAT MAY BE HELPFUL. IT IS NOT A SUBSTITUTE FOR THE ADVICE OF A BOARD-CERTIFIED BANKRUPTCY LAWYER, AND IT IS STRONGLY RECOMMENDED THAT IF YOU ARE GOING TO FILE A BANKRUPTCY OF ANY KIND, YOU HIRE A COMPETENT BOARD CERTIFIED BANKRUPTCY ATTORNEY.
