By Aubrey Thomas
Many bankruptcy lawyers agree that changes to Arizona’s exemption laws have been long over due. This year, the Arizona legislature has finally done something about it. Before getting into the changes, however, it is probably best to recap what an “exemption” is and why it is important if you’re considering filing bankruptcy.
In the bankruptcy context, it is the Trustee’s job to collect and sell all “nonexempt” property. The funds that the Trustee gathers are then distributed to the debtor’s creditors. Thus, if property is “exempt,” it is off limits to the Trustee (you get to keep it); if the property is “nonexempt,” the Trustee can take and sell the property.
As you can see from the brief explanation above, what is exempt versus what is nonexempt becomes a very important issue for a person considering bankruptcy. Under the current law, examples of exempt property are: $5,000 of equity in one vehicle, a specific list of household goods (beds, tables, etc.), $2,500 for tools of the trade, and up to $150 in one bank account per debtor. Notably missing from this list is a computer. Instead, current Arizona law protects a typewriter. Furthermore, the list of household goods is extremely specific, protecting a radio alarm clock, but not everyday dishes. In short, the current exemptions do not protect certain items that are a necessity to everyday living in our modern society and, instead, provide out-dated protections that are no longer needed in this day and age.
Arizona House Bill 2325 takes significant strides towards modernizing Arizona’s exemptions. There are three important changes that you will want to be aware of if you are considering a bankruptcy. First, the list of specific household goods that are protected has been replaced by a general category of “household goods” and “furnishings,” including “consumer electronic devices” and appliances, up to $6,000 in value total. This change provides much greater protections for debtors by eliminating the prescribed list of protected goods and simply allowing for a generic category of household goods. For example, under current law, the specific list of exempt items does not include everyday dishes or small kitchen appliances (ex: a toaster). Those items would be nonexempt and subject to the Trustee’s right to take those items and sell them. Under the new law, there is no specific list — therefore, all household goods, including a toaster, everyday dishes, and all other household goods within the limits of $6,000 garage-sale value, would be protected.
The second important change is that HB 2325 adds a computer worth up to $1,000 to the list of exempt property. That change acknowledges that a computer has become an integral part of today’s society. It has come to the point that one may be at a significant disadvantage for work opportunities if a home computer is not available.
Last, HB 2325 modernizes the “tools of the trade” exemption to double the amount available to $5,000 and to include certain intangible property like client lists and marketing tools.
HB 2325 will not go into effect until the Fall of 2013, but for some people, the additional protections may be worth the wait. You should speak to a lawyer to discuss the advantages/disadvantages of filing now versus waiting to file when the new exemptions are available. For more information of the upcoming changes, see the Arizona Legislature bill information website: http://www.azleg.gov/DocumentsForBill.asp?Bill_Number=HB2325&Session_ID=110 or call Davis Miles McGuire Gardner, PLLC for a confidential consultation.