I file cases for people in the Phoenix metro area out of my Chandler office. One of the most common questions people have is whether or not they will lose everything if they file for bankruptcy. People are usually most interested in knowing what will happen to their houses or cars. Generally speaking, if you are current on your house and car payments you can keep those assets. If they are paid off, they must be protected by “exemptions” (laws that protect your asset).
The point of a chapter 7 bankruptcy is to give you a fresh start. The law is meant to protect people like you who have been inundated with overwhelming debt that you can no longer afford to pay. It is a way to release you from being a slave to credit. But, most importantly, it is not a method to leave you homeless and without transportation, instead it is supposed to be a way to leave you with the things you need to move forward with your life, financially.
Here’s how it works in a nutshell: When you file a Chapter 7 bankruptcy, most of your assets are put into “the bankruptcy estate” and entrusted to a duly appointed bankruptcy “trustee”. It is the trustee’s job to find assets of value that can be sold (liquidated) and then use that money to pay something towards your debt. However, not everything you own will be liquidated, because each state has “exemptions” that protect your assets from creditors. Each state’s law varies significantly. Here is a condensed list of Arizona’s exemptions:
Total per case:
$150,000 Homestead (primary residence)
For each debtor:
$4,000 Household furnishings
$500 Clothes & shoes
$500 Musical instruments
$500 Domestic pets, horses, milk cows & poultry
$1,000 Wedding bands/rings
$250 Books
$500 Typewriter, bicycle, sewing machine, family bible, burial lot, rifle, shotgun or pistol
$100 Watch
$5,000 Vehicle
$1,000 Prepaid rent, security deposits
$20,000 Life insurance
The following are 100% exempt:
- Food, fuel & “provisions” for 6 months
- Earnings of minor child
- Social Security
- Unemployment compensation
- Workers compensation
- Welfare assistance
- Health, accident or disability insurance
- Child support
- Firemen/Police relief/pension benefits
- Teacher retirement
- State employee retirement
- Fraternal Benefit Society benefits
- School equipment used to teach
- Firefighting equipment
See Arizona Revised Statutes §9-931, §9-968, §20-881, §23-783, §23-1068, §§33-1101-02, §33-1104, §§33-1123-31, §38-792, §43-1201, §46-208, 42 U.S.C. 407(a), SEC 207
This list above is not all inclusive and certain limitations apply for some. Contact me to find out more.
