Can you keep any assets if you file for bankruptcy?

Posted by Michael S. Anderson | Nov 28, 2011 | 0 Comments

Arizona Bankruptcy Exemptions

The Bankruptcy Code attempts to strike a balance between the debtor's interests and those of the creditors.   It is a difficult thing to do of course and what is considered “balanced” can change with the political winds.  One thing that the code has always attempted to do despite politics, is to leave the bankruptcy debtor some assets after the case is over.   Most in the “know” feel that this has been done to prevent the debtor from becoming destitute and potentially a burden on the Government's welfare systems.

The law surrounding what assets are safe or “exempt” from attachment in a bankruptcy case can be complex.  There are exceptions and hidden traps that may be difficult to find and apply.  Generally though, each state is allowed to determine what property is safe and what property isn't.    The state of Arizona property exemptions are applied to most Arizona bankruptcy filings and the basic and most recent list can be found at the U.S. Bankruptcy Court's website here.

If the bankruptcy filer qualifies to use the Arizona bankruptcy exemptions than the following major items are typically safe:

– $150,000.00 equity in principal residence (may be limited)

– $4000.00 equity in household furnishings per adult filer

– 6 months food, fuel, provisions

– $500.00 in clothing

– $1000.00 in engagement/wedding ring value

– Funds in ERISA qualified retirement plans (with some limitations)

There are other items that are safe from creditors and therefore safe in a bankruptcy filing in Arizona as well, but the above are probably the most common.

There are a number of issues that crop up in relation to whether individual exemptions apply to assets including the fact that none of the exemptions protect the asset from back child support or spousal maintenance, but one of the most difficult issues can be whether or not the Arizona bankruptcy exemptions apply at all to the Arizona bankruptcy filer.

The rule is as follows:

You can only use exemptions for the state that you lived in for at least 730 days (2 years) before the date you will be filing the bankruptcy case.  If you didn't live in one state for that previous 2 year period than you have to use the state's exemptions where you lived the majority of the 180 day period preceding the 2 year period.  If that renders you ineligible to use any that state's exemptions, (some states limit use of their exemptions to current residents), than you may be able to use the federal bankruptcy exemptions.  Arizona filers i.e. those that qualify to use Arizona exemptions can't choose the federal exemptions under any circumstance.  See A.R.S. Sect. 33-1133.

Once you have determined the correct exemptions to use, you can also determine with some certainty which assets aren't exempt.  If the asset is not exempt you have to assume that you will lose it if you file a chapter 7 bankruptcy or that you will have to pay it's value to your creditors if you file a chapter 13 bankruptcy,  Of course, in the chapter 7 bankruptcy, the chapter 7 trustee may not be interested in the asset because it isn't worth very much,  but if the trustee is interested….

A common question potential bankruptcy filers have once they realize that an asset isn't going to be protected in a bankruptcy filing is “can they give the asset away” prior to filing.  The answer to that is the topic of another blog entry, but the answer is yes.   Assets can be given away prior to bankruptcy.  However… if an asset is transferred for less than market value within a certain period of time prior to filing the bankruptcy,  a number of other issues will arise…all negative for the filer and/or the transferee.

In any event, if you have assets and you think you may need a bankruptcy to deal with debts, you need to speak with experienced counsel to obtain a fuller understanding of your rights and duties in a bankruptcy filing as they pertain to bankruptcy exemptions.

About the Author

Michael S. Anderson

Michael Anderson has been representing Arizona clients with tax debt problems for two decades and has helped his clients eliminate millions of dollars in tax debt. His tax debt practice is limited to helping individuals and the self-employed who have serious IRS problems.


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