When it comes time to consider filing bankruptcy, clients are always concerned about whether they will lose their property. The answer depends on the type of bankruptcy they file, and the type of property they have.

Under the bankruptcy code, the filing of a bankruptcy case creates an “estate” which is comprised of all of the debtor’s interest (both legal and equitable) in property. Interestingly, property is not defined by the bankruptcy code, but is generally understood to mean anything you own that has any value. It also includes not only your property, but also, if you are married, all of the property you have acquired during your marriage, which is known as community property.

The chapter 7 bankruptcy process requires a bankruptcy trustee to “administer” the property of the estate, which means the trustee has the power to take the property and sell it for the benefit of your creditors. However, the bankruptcy code also permits the debtor to “exempt” certain property from the reach of the trustee and your creditors.

If you have resided in the state of Arizona for at least two years prior to the filing of your bankruptcy case, you may look to Arizona state law (as well as certain federal laws) to determine what property you are entitled to exempt. Common examples of exempt property include:

Equity in your home – $150,000
Certain Home furnishings – $4,000 for a single person; $8,000 for a joint filing
Equity in your vehicle – $5,000 for a single person; $10,000 for a joint filing
IRA or 401(k) plan – unlimited amount (except for contributions made within 120 days of filing bankruptcy.
Clothing – $500 for a single person; $1,000 for a joint filing
Tools of the Trade used in the debtor’s primary business – $2,500.00

These are just a list of the most common types of exempt property. There are additional exemptions and the specific list of exemptions are found in various state and federal laws. There is also property that is not exempt that you might not always think about and will have to surrender to your trustee, such as:

Tax refunds
Equity in the ownership of any incorporated business
25% of earned but unpaid wages at the time the bankruptcy case is filed
Pre-paid vacations, airline tickets, etc.
Time shares

Careful consideration of applicable exemption law should be done with an experienced bankruptcy attorney prior to filing to avoid losing property that might otherwise been used to your benefit. For example, under certain circumstances, clients may wish to defer filing bankruptcy while they liquidate non-exempt property and use the proceeds for living expenses or to purchase other exempt property. In addition, clients may choose to file chapter 13 bankruptcy, which may allow them to keep their non-exempt property and pay their creditors for the value of that property over a 3 to 5 year period of time.

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