Many people assume that when an individual files for Chapter 7 personal bankruptcy protection, he or she will lose everything. This fear, that the bankruptcy court or a person's creditors will take everything from a debtor, deters many people who are in desperate need of debt relief from filing for bankruptcy protection.
However, the notion that a person automatically loses everything when filing a Chapter 7 bankruptcy is absolutely untrue. In fact, in many instances, and with the proper planning/attorney guidance, a debtor is able to keep almost all of his or her assets while also discharging large amounts of unsecured debt in this relatively short process.
The mechanism that protects a debtor's assets is known as an "exemption." Exemptions are laws that entitle a debtor to retain specific assets and property regardless of how much money that person may owe. There are both state and federal exemptions. Federal bankruptcy law allows a person to protect specific kinds of property from creditor (11 U.S.C. § 522). Each state in which a debtor resides allows him or her to protect specific kinds of property as well. The list of protectable assets varies from state to state. A married couple filing a joint bankruptcy is entitled to two sets of exemptions for most kinds of property.
The following examples discuss a few state exemptions that are available to debtors who file for Chapter 7 bankruptcy protection in Arizona (assuming the potential debtor meets the Arizona residency requirements pursuant to bankruptcy law):
- An individual has an exemption in their home in the amount of $150,000.00. This means the first $150,000.00 of equity in a piece of property goes to the debtor in the event of a sale of that property. The exemption amount is the same regardless of whether it is a single or joint bankruptcy filing. (A.R.S. § 33-1101)
- Each person can protect up to $4,000.00 worth of household furniture, furnishings and appliances that he or she personally uses. In the event a married couple files a joint bankruptcy, the exemption doubles to a maximum of $8,000.00 worth of household assets. In addition, property is valued at "garage sale" values, meaning that the property's worth is significantly undervalued. (A.R.S. § 33-1123)
- A debtor can also protect his or her wardrobe up to $500.00 in garage sale value, which is doubled when there is a joint filing. (A.R.S. § 33-1125(1))
- A debtor can protect almost all of his or her retirement accounts so long as it is an ERISA-qualified retirement plan or a deferred compensation plan. (A.R.S. § 33-1126(B))
- All child support or spousal maintenance that is received pursuant to a court order is fully protected in bankruptcy. (A.R.S. § 33-1126(A))
These are just some of the exemptions available to individuals who file for Chapter 7 bankrtupcy protection. Because of the somewhat complex nature of the US Bankruptcy Code and the interplay of state law, a person considering bankruptcy should consult a local attorney to maximize exemptions and guard against possible issues during the bankruptcy process.
Jeffrey F. Levine, Esq.
Singer Pistiner, P.C.
(602) 264-0110
jl@singerpistiner.com
phoenix-bankruptcy-lawyers.com
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