Chapter 13 bankruptcy can be an effective tool to stop foreclosure and save your Arizona home. Unlike liquidation bankruptcy, Chapter 13 allows individuals with sufficient regular income to retain non-exempt property by creating a three-to-five-year repayment plan for some or all of their debt, including delinquent mortgage payments. If the bankruptcy court approves your repayment plan, and you make timely repayments to the bankruptcy trustee thereafter, you'll be able to keep your home.
The Arizona Homestead Exemption
Although filing for Chapter 13 bankruptcy triggers the automatic stay that halts a foreclosure action, your home is still not necessarily exempt from attachment, execution, or forced sale. Rather, exemption depends on the amount of equity you have in your home and how much equity the law allows you to protect.
Arizona has one of the most generous homestead exemptions in the country. If you are an Arizona homeowner, the Arizona Homestead Exemption permits you to protect up to $150,000 in equity in your home from general creditors. The exemption is only applicable to your principal place of residence, and the exemption amount is the same, whether you're married or single.
In a Chapter 13 proceeding, the homestead exemption means that if the amount of equity in your home is $150,000 or less, it is exempt from the claims of any creditor except the mortgage company or a consensual lien holder. However, if your equity is higher than $150,000, you must pay creditors an amount equal to the property's non-exempt value through the repayment plan.
To illustrate: if your Arizona home is worth $300,000 and you have a $150,000 mortgage balance, your equity is $150,000. Your equity is within the homestead exemption limits, and you won't have to pay for the equity in your repayment plan.
If, however, your home is worth $300,000 and your mortgage is $100,000, then your equity is $200,000, which is above the homestead exemption amount. In this case, the non-exempt $50,000 would be subject to creditor claims and must be repaid through your reorganized payment plan.
Note that if the trustee believes that you won't have sufficient income to repay the non-exempt amount within three to five years, they may object to the proposed repayment plan and seek to force the sale of your home.
Other Bankruptcy Exemptions under Arizona Law
In addition to the homestead exemption, an Arizona Chapter 13 debtor is entitled to numerous other exemptions, including:
- Household furniture, furnishing, and goods up to $6,000.
- Personal items, such as clothes, jewelry, musical instruments, domestic pets, firearms, with varying limits.
- Equity in a motor vehicle up to $6,000.
- Life insurance proceeds up to $20,000 if payable to a surviving spouse or child.
- Child support or spousal maintenance.
- Money, proceeds, or benefits from employer health, accident, disability insurance benefits.
- Benefits from ERISA-qualified retirement plan or deferred compensation plan except those amounts contributed within 120 days before you filed for bankruptcy.