The Arizona Revised Statutes provide a lengthy list of assets that are exempt from creditor claims and debt collectors; there is also a list of exempt assets under federal case law and the United States Code that can expand upon Arizona’s list. Arizona’s list of exempt assets, which is available to Arizona residents, includes:
- Homestead: Debtor’s equity interest in real property (e.g., house, condominium or cooperative, mobile home) in which debtor resides, in the amount of $250,000 [A.R.S. § 33-1101].
- Personal Property: Debtor’s household furnishings, appliances and consumer electronics, in the total amount of $6,000 [A.R.S. § 33-1123].
- Personal Property: Debtor’s horses, milk cows and poultry, in the total amount of $1,000 [A.R.S. § 33-1125(3)].
- Personal Property: Debtor’s engagement and wedding rings, in the total amount of $2,000 [A.R.S. § 33-1125(4)].
- Personal Property: Debtor’s equity in one motor vehicle, in the amount of $6,000 (or $12,000 if debtor or debtor’s dependent has a physical disability) [A.R.S. § 33-1125(8)].
- Personal Property: Debtor’s domestic animals or household pets, in an unlimited amount (they are, after all, often members of the family and are priceless) [A.R.S. § 33-1125(11)].
- Tools and Equipment: Debtor’s tools, equipment, instruments and books used in debtor’s business or profession, in the total amount of $5,000 [A.R.S. § 33-1130(1)].
Preserving Debtor Protections.
Some debtors may be “collection proof,” meaning that all of their income and property is exempt and cannot be taken by a creditor.
However, to retain the protections that Arizona’s exemption laws provide, debtors should be careful that they do not convert an exempt asset into a non-exempt asset. This is called “transmutation” and can occur, for example, when an exempt asset is sold and the proceeds of the sale, which are generally not exempt under Arizona law, are no longer protected.
Debtors should also be careful not to commingle exempt assets with nonexempt assets. Where such commingling takes place (such as where debtors deposit non-exempt monies with what would otherwise be exempt monies sitting in a bank account), creditors may have an argument that all of the monies are now non-exempt.
To best avoid these problems and retain the protections that Arizona’s exemption laws provide, debtors would be well served to keep their exempt assets exempt, and their non-exempt assets separate from their exempt assets.
Exemption Exceptions.
Although Arizona exemption laws generally do a good job of providing the protections that Arizona lawmakers have put in place, these protections can be overridden on occasion.
For example, a court can find that an exemption does not apply to certain property and can thus order the debtor to turn over the property to the creditor. In addition, the federal government (e.g., the Internal Revenue Service) can take property that might otherwise be exempt to satisfy debts (such as taxes) owed to the federal government.
Further, where debtors are engaged in defrauding creditors in obtaining loans and are using their ill-gotten gains to purchase exempt property, creditors can seek to capture the exempt property and override the exemption protection. Therefore, while Arizona exemption laws help protect honest debtors who are struggling to pay creditors and debt collectors, there are exceptions, and debtors can lose exempt property in specific situations.
Conclusion.
In the cat-and-mouse game between creditors and debtors, debtors may keep certain property under Arizona exemption laws. These laws generally do a good job to protect the debtors’ property (be it their homestead, their motor vehicle or their household pets) from creditors and debt collectors and help honest debtors stay afloat through tough financial times.
