JamesSmith

Can one claim bankruptcy exemptions outside bankruptcy in Arizona

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Hi all,

 

Iv'e been poking around for a while now trying to find the answer to this question. The general consensus seems to be YES but from time to time I come across someone who states that you need to file BK in order to claim BK exemptions.

 

On the one hand i read statements like:

 

"Perhaps the most utilized exemption used outside of the bankruptcy context to protect a debtor’s livelihood is Arizona Revised Statutes section 33-1131, which provides that 75% of a debtor’s wages are exempt from garnishment"

 

"Inside of bankruptcy, exemption laws shield certain items of property from the bankruptcy trustee. Outside of bankruptcy, exemption laws protect your property from judgment creditors"

 

Then on the other:

 

"Outside of bankruptcy court, each state determines how their collection laws will apply and the results can vary greatly"

 

I"n Arizona, a primary residence qualifies for a homestead exemption.  The exemption protects up to $150,000 of equity from creditors (excluding mortgage lenders).  Although homeowners qualify for this benefit automatically, the exemption requires filing for bankruptcy in order to claim it and protect the equity in a home.  This is a strategy most homeowners prefer to avoid"

 

So i'm more than a little confused. If anyone can shed some light on this i would be very grateful...

 

tonyfalcon

 

 

 

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Hi all,

 

Iv'e been poking around for a while now trying to find the answer to this question. The general consensus seems to be YES but from time to time I come across someone who states that you need to file BK in order to claim BK exemptions.

 

On the one hand i read statements like:

 

"Perhaps the most utilized exemption used outside of the bankruptcy context to protect a debtor’s livelihood is Arizona Revised Statutes section 33-1131, which provides that 75% of a debtor’s wages are exempt from garnishment"

 

"Inside of bankruptcy, exemption laws shield certain items of property from the bankruptcy trustee. Outside of bankruptcy, exemption laws protect your property from judgment creditors"

 

Then on the other:

 

"Outside of bankruptcy court, each state determines how their collection laws will apply and the results can vary greatly"

 

I"n Arizona, a primary residence qualifies for a homestead exemption.  The exemption protects up to $150,000 of equity from creditors (excluding mortgage lenders).  Although homeowners qualify for this benefit automatically, the exemption requires filing for bankruptcy in order to claim it and protect the equity in a home.  This is a strategy most homeowners prefer to avoid"

 

So i'm more than a little confused. If anyone can shed some light on this i would be very grateful...

 

tonyfalcon

 

Yes one statement (the first one) applies to wages only.  AZ allows wage garnishment and up to 25% of wages can be garnished.  However, that is ONLY the amount above the federal poverty level.  So a minimum wage employee would be exempt from garnishment due to being below the poverty level.  Someone earning 100k a year would not and 25% of their income after taxes would be up for grabs.  

 

The second statement is in regards to a home.  If you want to exempt a home from a lien you would have to file BK.  If you don't then there is no homestead exemption in AZ.  So if a creditor gets a judgment they can put a lien on the home.  If you want the homestead exemption you have to file BK.  BK extinguishes the debt and up to $150,000 in value is exempt from the BK estate and being distributed to creditors.  So if your home is worth 300k and you owe $258 on it then the equity could be exempted in a BK from being an asset to the trustee.  If your home is worth 300k and you owe nothing on it then 150k is exempt and the BK trustee could sell the home putting 150k towards your creditors.

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Tony,

 

Don't know who you have been talking to or what you have been reading.  Arizona exemptions apply to residents of Arizona regardless of filing bankruptcy.  It is a STATE LAW, inside or outside of bankruptcy.  For bankruptcy purposes Arizona is an "opt out" state.  This means that someone who has resided in Arizona for at least two years and elects to bankruptcy MUST use ARIZONA STATE exemptions to protect property in the context of that bankruptcy. 

 

Here is a link to the Arizona Revised Statute.  Scroll down to Article 8 Chapters 1 and 2.  There are additional insurance/annuity exemptions under State law but this will give you the info I think you are seeking in general.

 

http://www.azleg.state.az.us/ArizonaRevisedStatutes.asp?Title=33

 

Des. 

 

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If you want to exempt a home from a lien you would have to file BK.  If you don't then there is no homestead exemption in AZ.  So if a creditor gets a judgment they can put a lien on the home.  If you want the homestead exemption you have to file BK.  BK extinguishes the debt and up to $150,000

 

With all due respect, this is totally wrong.

 

Des.

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@tonyfalcon

 

I believe he's referring to protect the equity in a home in order to prevent the forced sale of the house.  However, there are laws that prevent the forced sale when the sale would not result in money left over to pay a judgment.

 

If AZ law is like my state's law, a judgment creditor cannot force the sale of a house if the sale would not result in money left over to pay the judgment. 

 

Here's a very basic example of how it works in my state:

 

1.  You have $50,000 left on your mortgage.

 

2.  $150,000 in equity (AZ law) is protected.

 

3.  You owe the judgment creditor $20,000.

 

Between the mortgage and the exempt equity, $200,000 is protected.  Let's say the house is only worth, $190,000.  The sale of the house would not leave any money left over to cover the $20,000 judgment.

 

If there were no mortgage, only the $150,000 in equity would be protected.  Since the house is worth $190,000, there would be money left over to pay a judgment.

 

The applicable laws in your state are ARS 33-1101 - 33-1105.

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Awesome!. Thank you very much!.

 

Very nice of you all to take the time to answer my question.

 

My house is worth $80,000. I have $26,000 equity in it now so the $150,000 AZ equity exemption is more than ample protection against a lien or forced sale in my case correct?

 

tonyfalcon

 

 

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Awesome!. Thank you very much!.

 

Very nice of you all to take the time to answer my question.

 

My house is worth $80,000. I have $26,000 equity in it now so the $150,000 AZ equity exemption is more than ample protection against a lien or forced sale in my case correct?

 

tonyfalcon

 

Under Arizona law, unless the judgment is related to child/spousal support, judgment liens do not attach to homestead property if the equity, after consideration of any consensual liens, is $150,000 or less. 

 

Assuming the property is your homestead residence and you are not dealing with either a support lien or a consensual lien, you should be fine.

 

Please note that forced sales can and will be done when dealing with mortgage, HOA, property tax, IRS and/or state tax liens as all such liens are deemed "consensual".

 

Des.

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Under Arizona law, unless the judgment is related to child/spousal support, judgment liens do not attach to homestead property if the equity, after consideration of any consensual liens, is $150,000 or less. 

 

Assuming the property is your homestead residence and you are not dealing with either a support lien or a consensual lien, you should be fine.

 

Please note that forced sales can and will be done when dealing with mortgage, HOA, property tax, IRS and/or state tax liens as all such liens are deemed "consensual".

 

Des.

 

OK thanks Des,

 

I was rather hoping that would be the consensus.

 

Now my other concern is that one of the credit cards I'm having trouble paying is at the same bank (Chase) that the mortgage is at. (I made a separate post about that in the 'Mortgage' section).

 

tonyfalcon

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Now my other concern is that one of the credit cards I'm having trouble paying is at the same bank (Chase) that the mortgage is at.

 

tonyfalcon

Should not be a problem as they are two different divisions of Chase.  However, as a general rule, one should not bank where one owes money.  If you bank at Chase I would suggest going to another bank (one you do not owe anything to).  Reason. . .  if you default under a loan with the bank, the bank can reach into your bank account and setoff what you owe in full or in part.

 

Des.

 

PS:  The Tucson attny has taken down that page you viewed.  Kudos to him as such was the correct and honorable thing to do.

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Yes one statement (the first one) applies to wages only.  AZ allows wage garnishment and up to 25% of wages can be garnished.  However, that is ONLY the amount above the federal poverty level.  So a minimum wage employee would be exempt from garnishment due to being below the poverty level.  Someone earning 100k a year would not and 25% of their income after taxes would be up for grabs.  

 

The second statement is in regards to a home.  If you want to exempt a home from a lien you would have to file BK.  If you don't then there is no homestead exemption in AZ.  So if a creditor gets a judgment they can put a lien on the home.  If you want the homestead exemption you have to file BK.  BK extinguishes the debt and up to $150,000 in value is exempt from the BK estate and being distributed to creditors.  So if your home is worth 300k and you owe $258 on it then the equity could be exempted in a BK from being an asset to the trustee.  If your home is worth 300k and you owe nothing on it then 150k is exempt and the BK trustee could sell the home putting 150k towards your creditors.

 
ClydesmomI I think i see where the confusion arose regarding exemptions outside of BK in AZ. This is a quote from a lawyer's site who operates in Georgia:
 
I"n Georgia, there are two sets of exemptions, constitutional and statutory.
 
In order to assert the constitutional exemption, the debtor must file a petition with the probate judge in the county where the debtor resides
 
The bad news is that the statutory exemptions can only be used for bankruptcy purposes"
 
So, according to this it's true, for your state anyway, that Statutory exemptions can only be claimed in BK. And i guess that's the thing to remember. Different states have different laws regarding the use of statutory exemptions and even then whether you can opt to use federal exemptions or can only choose the states exemptions.
 
tonyfalcon
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Des.

 

PS:  The Tucson attny has taken down that page you viewed.  Kudos to him as such was the correct and honorable thing to do.

 
Thanks Des for alerting me to that. The re-written article now states:
 
"1.  How does the Homestead Exemption protect a personal residence?
 
Arizona law provides a homestead exemption to any person who owns and occupies a personal residence in Arizona.  This statutory exemption protects up to $150,000 of equity from creditors with some exceptions, including a mortgage, mechanic’s lien, and child support.  The homestead exemption is intended to prevent the attachment or forced sale of a personal residence to satisfy judgment creditors.  In Arizona the exemption is automatic, which means that no special action is required to benefit from it, although a homestead declaration may be recorded if you have more than one eligible property."
 
BTW There was no malice intended when i brought this article to attention, I was just confused and trying to clear up the question.
 
tonyfalcon
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BTW There was no malice intended when i brought this article to attention, I was just confused and trying to clear up the question.

 
tonyfalcon

 

Nor was there any when I brought the issue to the attention of my colleague from Tucson.  He very professionally took the bull by the horns and made the change.  There is nothing wrong with politely and professionally pointing out mistakes.  Lord knows, I have made some in various posts.  When wrong, I readily admit it and correct the errors.  Mistakes happen.  That's life.

 

Des.

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Nor was there any when I brought the issue to the attention of my colleague from Tucson.  He very professionally took the bull by the horns and made the change.  There is nothing wrong with politely and professionally pointing out mistakes.  Lord knows, I have made some in various posts.  When wrong, I readily admit it and correct the errors.  Mistakes happen.  That's life.

 

Des.

 

OK thanks Des. No worries then.

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