If you are filing for Chapter 7 bankruptcy, all the assets you need will likely be exempt. This means these assets will not be considered in the bankruptcy process. Your assets will be yours to keep. There are notable exceptions. For example,if you have jet skis and vacation homes, maybe not exempt. However, if you owe a reasonable amount on your home and car, probably exempt. Most people keep their home and car, everything in their home, and most other things in a chapter 7 bankruptcy. Even business assets can be exempt in a personal bankruptcy. With the recent changes in Arizona bankruptcy exemptions, and the new Arizona homestead exemption law, it is worth a closer look.
Yes, people nearly always keep their home through the bankruptcy process. Here’s how.
Arizona has a very generous exemption for equity in your home. The Arizona Homestead Bankruptcy Exemption is up to $400,000 if you owned your home for at least three years and four months before filing for bankruptcy. That means that you could have up to $400,000 in equity in your home and still keep it in bankruptcy. If you owned your home for less time, there is a possibility your equity might be capped at a lower amount, and our lawyers can assess your situations.
Equity is the difference between what you owe and what the home is worth. If you owe $300,000 on the home, the home could be worth up to $700,000 and still be exempt based on the $400,000 equity exemption. Valuation is somewhat subjective, so don’t get caught up in the actual valuation. If the Bankruptcy court attempts to get value from the home, the court would still have to pay costs of sale. This is usually 6% to the sales agent. Additionally, sale by a bankruptcy court will rarely bring full value. Therefore, any valuation from Zillow, or even an appraisal, is fluid in the bankruptcy process.
The bankruptcy process is not one where you “put the home in,” or “take the home out.” That sounds more like the Hokey Pokey. In bankruptcy, you simply list all of your assets and liabilities. With secured assets, you declare what you owe, and what the asset is worth. Based on this valuation, you will then use the appropriate exemption from Arizona Revised Statutes. Once the asset is properly exempted, you can simply check a box electing to keep the asset, or forfeit the asset. If you keep the asset, you will have to pay the secured lien. If you forfeit the asset, you simply give it back and owe nothing.
A.R.S. § 33-1101 – Any person eighteen years of age or over, married or single, who resides within this state may hold as a homestead exempt from execution and forced sale, not exceeding $400,000 in value, any one of the following:
Can we use two homestead exemptions?
Only one homestead exemption may be used, regardless of who is filing. Even if you get divorced, and you lived together on the property when you were married, you could still only claim one $400,000 exemption.
What if I sell my home? Can I still use the homestead exemption?
Yes! If you sell your home, the homestead exemption will attach to the money you get from the sale for 18 months, or until you establish a new homestead, whichever is shorter. This applies whether you sold the property or the property was forced to be sold like in a foreclosure. Be careful though, the homestead exemption does not attach to money you get from refinance. The homestead exemption only attaches to money you get from the sale of the home.
Do I need to register my home to get the homestead exemption?
Unlike other states, like Nevada for one, the homestead exemption automatically attaches in Arizona. You do not need to register or declare the homestead exemption, except on the bankruptcy petition.
1215-DAY RULE IN BANKRUPTCY
The U.S. Bankruptcy Code limits the homestead exemption. If you file for bankruptcy within 1215 days of buying your home, you do not get the full amount of Arizona’s homestead exemption. Why 1215 days? We don’t know. The U.S. Congress makes this stuff up. Regardless, 1215 days is about 3 years and 4 months. Pursuant to 11 U.S.C. § 522(p), “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 [$170,350] in value”.
Stripping Liens in Bankruptcy
If a creditor takes a judgment against you, that judgment will automatically attach to real estate in any county the lien is recorded. In Arizona, this is true for real estate you now own, or real estate you buy in the future. The judgment even attaches to homestead real estate. These types of creditors are known as judgment creditors. They may have started out as a credit card or personal loan. However, once they sued and got a judgment, they get special status as judgment creditors.
Judgments will automatically attach to real estate and homestead properties. Therefore, even if you discharge the debt, the judgment lien will still survive the bankruptcy. However, you may have heard of an old technique called stripping liens in bankruptcy. U.S. Bankruptcy Code Section 522(f) (11 U.S.C. § 522(f)) says that a debtor can get rid of a judgment lien that impairs their ability to claim the homestead exemption. In bankruptcy, a debtor can ask the court to declare the lien invalid if it cuts into their homestead exemption amount.
This may sound like a good deal, but in reality it is not used much. The homestead exemption is not applicable to a refinance. The homestead exemption is paid after consentual creditors in the sale of real estate. Consentual creditor are the liens to which you agreed, like a mortgage. Therefore, the judgment creditor only gets paid after the homestead amount of $250,000 is paid to the owner. Because the judgment creditor is not paid until after the homestead amount, it is not normally the case that it interferes with the homestead exemption.
Yes, almost everyone is able to keep their car in bankruptcy. Here is how:
Vehicles are conditionally protected by exemption laws. $15,000 of your car’s equity is exempt and untouchable. If you are disabled, that exemption rises to $25,000. If you have little equity in your car or its value falls at or below the $15,000 limit, there is little chance it will be of any interest to the court.
Up to six months of food and fuel expenses are immune from being seized as assets to pay off debt during your Chapter 7 case. This means certain funds you have saved may be protected, and you can continue to live decently while you are under bankruptcy to get your financial life back on track.
You can also have $5,000 in one bank account exempt. If you are married, you can have up to $10,000 in one account or each spouse can have their own account with $5,000.
The above are but a few of the examples of exemptions in. There are many more, and some can be relatively far-reaching. To obtain an exhaustive list or to get an assessment of what pieces of your property could likely stand exempt from Chapter 7’s liquidation procedures, contact one of our knowledgeable bankruptcy attorneys today. We are open seven days a week with extended hours to serve you and answer any questions you may have concerning the bankruptcy process.
