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What Is An Exemption?

When someone files bankruptcy, the general idea is that he or she has no assets. However, the courts also recognize that, even if you file bankruptcy, you must still live. You must be able to pay rent, buy food, pay your electric bill and find healthcare coverage. Additionally, the courts do not believe that you should have to give up assets that have sentimental value but little real monetary value, nor do they force you to give up all of your interest in certain personal property and real estate. In this sense, filing a bankruptcy does not really mean surrendering all of your assets. Instead, you may be able to protect some assets through the process of exemption.

What Is A Bankruptcy Exemption?

States have one of two choices when it comes to bankruptcy exemptions. They can either choose to use their own set of criteria, known as state exemptions, or they can adopt the federal exemption scheme. Arizona has chosen to use a state exemption scheme, which means that debtors who file in Arizona may have a different set of exemptions than those in other states. In Arizona, the following exemptions are allowed to all debtors:

  • Bank deposits. There are exemptions for both single and married debtors; in general, these exemptions are limited to a single bank account.
  • Homestead exemption. Up to $150,000 may be exempted for equity in the primary residence; however, this may change depending on the debtor’s circumstances.
  • Life insurance benefits. Up to $20,000 of life insurance benefits may be exempt when they are paid to a surviving spouse or child. In addition, some health, accident or disability insurance payments are also exempt, although there are exceptions.
  • Debtors may be able to exempt $6,000 in a motor vehicle; the elderly and disabled may be able to exempt up to $12,000.
  • Personal property. Arizona publishes a schedule of personal property exemptions. For example, debtors may be able to exempt up to $800 in animals, $2,000 in wedding or engagement rings and $6,000 in household furniture and appliances.
  • The tools that someone needs to do his or her job may be exempt from bankruptcy up to $5,000.
  • Wages, unemployment and workers’ compensation. Certain types of income, such as unemployment and worker’s compensation, may be completely exempt from bankruptcy. Most debtors are entitled to exempt at least 25 percent of their disposable earnings, no matter what the source.

There are many rules and exceptions to the Arizona exemption scheme. If you have questions, contact the experienced bankruptcy attorneys at Oswalt Law Group in Phoenix.

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