A Chapter 7 bankruptcy is a “fresh start,” with a discharge of most consumer debts. In the past, you didn’t need to be overly concerned about losing everything. But whether you can keep your house and vehicle has become more complicated in 2022, because most Arizona homeowners have much more in equity than they did in the past. So, you need to be careful about filing Chapter 7 bankruptcy in the current housing market.
Here’s why: there is an upper limit as to what you can keep in a Chapter 7 bankruptcy, under what is known as the Homestead Exemption. Luckily, Arizona legislators have responded to the market, but you still have to be careful.
Each state has a “homestead” law that protects a certain amount of real estate equity for people filing for bankruptcy. You must use the home as your residence, and you must be an Arizona resident. Under the Arizona homestead law, you currently can keep $250,000 in equity. In the recent past, this was only $150,000. It appears that the Arizona legislature has reacted to the housing market, increasing the homestead exemption from $150,000.00 to $250,000.00 effective January 1, 2022. So, many Arizona homeowners will be able to keep their homes.
If you have more than $250,000 in equity, however, the Bankruptcy Trustee can sell your home to satisfy your creditors, unless another exemption applies. So, if your residence is in an upscale neighborhood, like Scottsdale, Arcadia or Ahwatukee, you need to be careful and get good advice when attempting to file for Chapter 7.
In Arizona, you are allowed to keep a vehicle with equity (value) of up to $6000, which is increased to $12,000 if the vehicle is owned by a person who is disabled or has a disabled dependent. If you want to keep a financed vehicle, you will need to meet the exemption and need to be current on your car payments. In the alternative, you can sign a reaffirmation agreement for the debt and continue to pay on the car. However, the debt will not be discharged, as you have reaffirmed the debt.
Brittany Labadie is the Managing Partner at Lewis Labadie. She has been working with Lewis Labadie since it opened. Her current focus is with adoption cases, including juvenile adoptions, adult adoptions, foster care adoptions, same-sex adoption, surrogacy adoptions, and when necessary termination of parental rights. She works throughout the State of Arizona.
