Bankruptcy – Do I Lose It All?

Mar 19, 2024 | Bankruptcy, Chapter 7 Bankruptcy

This is just great! I’m in a financial bind. I’ve tried everything to get on my feet, but I owe way too much money to too many people. I’ve heard of bankruptcy and have been thinking about it a lot lately, but it’s just for people who don’t own anything, isn’t it? I mean, I don’t own lots of stuff, but I do have a car that I’m making payments on, I’ve got a house, and in it I’ve got some furniture, a TV, my computer, and my bed. And of course, on me right now I’ve got my cell phone and some cash in my pocket. All this stuff isn’t just valuable to me, but it’s straight-up valuable. For example, I could turn around and sell my couch for real money. It’s not the best, but I bought it used from someone else, so I know someone else would do the same.

The point is, I may not have a lot, but I have some stuff, and it’s stuff I can’t live without. I need my house. It’s where I live after all. And it’s got equity in it. If I file bankruptcy and they take away my house, I’m losing more than just the roof over my head. I’m losing that equity as well.

The same goes for my car. It’s an older car, but it’s still in great shape and it’s paid off. Not having a car payment is one reason I haven’t had to think about bankruptcy sooner than I already have. Besides, I need my car to go back and forth to work. It’s too far to walk or take a bus, so without my car, I lose my job. And if I lose my job – this conversation becomes different.

In fact, I can’t think of too much that I can live without. And I haven’t even talked about my dog. There’s no way I’m letting him go. I’m not sure how valuable he is, but he’s valuable to me. They wouldn’t take my dog if I file for bankruptcy, would they?

Is this you? Have you had any or all of these questions when you thought about bankruptcy? No, they aren’t going to take your dog. No, they aren’t going to take your bed or your couch or your tv. And in most cases, they won’t even take your car or your house. If your situation sounds similar to the one above, fear not. You can usually file for bankruptcy and keep most, if not all of what you own. Read on and you will learn exactly how it all works when you file for bankruptcy.

Your Home

A man’s home is his castle. But just like some medieval invading force, your creditors can breach it’s defenses – and rather quickly at that. The good news is, in Arizona you can have A LOT of equity in your home and still qualify. As this is written, you can have $400,000 of equity in your home and still qualify for bankruptcy without having to sell your home.

The only down-side is that you have to be up-to-date on your payments. If you file bankruptcy when you are behind on your mortgage, you risk losing your home. The good news is, any reputable bankruptcy attorney will work with you to strategize being caught up on the mortgage when you file, and you’ll have nothing to worry about. Worst-case-scenario, you could always file chapter 13 bankruptcy, which allows you to catch up on the mortgage without the risk of losing your home. The negative of chapter 13 is you often have to pay some of your debt back rather than completely eliminating it – but it can still be a great option for you and will still allow you to eliminate a lot of debt.

Your Car

You can have over $15,000 in equity in one car. If you are married, double that. So unless you have a car with lots of resale value, you aren’t going to have to worry about the court taking it from you. Here’s an example if you don’t get the whole equity thing. Let’s say you bought a car for $30,000. You put a lot of money down when you bought it and have been making payments for a while. Now you only owe $5,000 on it. If the resale value of it is $20,000 – you’ve got $15,000 in equity.

Think of it this way. How much money would you walk away with if you turned around and sold it for roughly what it is worth? That’s the equity. If you don’t know what the resale value is, there are plenty of calculators online that can tell you what you could sell your car for. As long as your walk away money is less than around the $15,000 mark, you’re in good shape. Just as with your home, you’ve got to be current on payments or you risk losing that vehicle. Again, just consult your attorney on this to be sure your car is safe when you file.

All That Other Stuff

When it comes to the rest of the stuff the garden-variety, average-Joe owns, it gets a lot more straightforward. Usually you aren’t making payments on these items, so you don’t face the issue of having to be caught up on your payments when you file. If there is something else you are making payments on, you can often treat it like the car scenario above. You should check with an attorney though, because depending on the loan, you might not even have to continue making payments and yet you’ll still be able to keep whatever it is.

When it comes to the “other stuff” that you own outright, your state will have rules called “exemptions.” These are specific rules for all different categories of property and the values you are allowed to have when you file for bankruptcy. It’s pretty uncommon to own things that are more valuable than the exemption rules, but it doesn’t hurt to go over this with your attorney just to make sure. Below is a list of common Arizona bankruptcy exemptions and the dollar amounts for what you are allowed to have without the risk of losing any of these items.

Homestead: Equity in a house, townhouse, condominium, or mobile home, where the debtor resides $414,800

Bank Account: Money held in one account at any one financial institution $5,200

Automobile: One motor vehicle $15,600

Household items:

  • One kitchen table and one dining room table, with four chairs each
  • One living room couch
  • One living room chair
  • Three living room coffee or end tables
  • Three living room lamps
  • One living room carpet or rug
  • Two beds
  • One night-stand, dresser, and lamp for each exempt bed
  • Bedding for each exempt bed
  • One television set or radio or stereo
  • One radio alarm clock
  • One stove
  • One refrigerator
  • One washing machine
  • One clothes dryer
  • One vacuum cleaner

$15,600 Total

Pets and Animals: Domestic pets, horses, milk cows, and poultry $1,000

Wearing Apparel: Clothing belonging to debtor and family $500

Jewelry: Including engagement and wedding rings $2,000

Library: All books, manuals, published materials, and personal documents $250

Musical Instruments $400

Other Personal Property: One typewriter, one bicycle, one sewing machine, a family Bible, a lot in any burial ground, one shotgun or rifle or pistol $2,000

Tools of Trade: The tools, equipment, instruments, and books needed for commercial activity, trade, business, or profession $5,000

Farming Implements: Farm machinery, utensils, implements of husbandry, feed, seed, grain, and animals (only if the primary income is derived from farming) $2,500

In addition to the above exemptions, the state of Arizona also allows an individual to keep 100% of the following:

  • Child support and spousal maintenance
  • Health, accident, or disability benefits
  • Life insurance policies
  • Annuity contract
  • Qualifying IRAs
  • Arms, uniforms, and accouterments
  • Unemployment compensation benefits
  • Welfare assistance
  • Arizona State Retirement Benefits
  • Long-Term Disability Program Benefits

Exemption rules change periodically. To be sure you have the latest details, please visit the Arizona Legislative Computer Service of the Arizona State Legislature,ALIS Online, to verify the current status of any exemption.

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