AZ Homestead Exemption in Bankruptcy

It is important to know your states homestead exemption before filing for bankruptcy. The applicable homestead exemption will help you protect your home through the bankruptcy process. Arizona bankruptcy law allows debtors to protect up to $150,000 of equity in their home. Married couples filing jointly are not permitted to double the exemption. Arizona’s homestead exemption applies to an occupied home, mobile home or apartment. In addition, sale proceeds from exempt real estate are protected for 18 months or until a new home has been purchased, whichever occurs first. Arizona is an “opt-out” state, meaning federal exemptions are not available.

The Arizona exemption is in place to protect home equity. As a result, it is possible to keep a home in Phoenix worth $500,000 through the bankruptcy process in Arizona if there is a mortgage lien of at least $350,000. In this example, the debtor has $150,000 of home equity, which is the maximum amount allowed under Arizona law. As a practical matter, a trustee will not go after a home that exceeds the allowed exemption by only a small amount. If the Phoenix home in the example above were worth $510,000 with a mortgage of $150,000, there is technically $160,000 of equity which execeeds the maximum amount allowed. $10,000 of this would be considered non-exempt under Arizona law. However, due to the fact that there are significant costs associated with selling a home, it is doubtful the trustee would find it worthwhile to try to sell the home to satisfy creditor claims. He or she would lose money on the deal.

If you are considering filing for bankruptcy in Arizona, consult an attorney.

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