FINANCIAL CHALLENGES

Exemptions from Collections

John McKindles

February 2010

More Articles on Dealing with Financial Challenges

Persons who are the target of collections efforts are entitled to statutory exemptions from creditors and judgment creditors, and a summary of Arizona statutory exemptions and current exemption amounts is provided for your review.

The referenced statutes exempt from unsecured judgment creditors those listed assets up to the exempt amounts indicated. Further, these are net values, not gross values. For example, if your qualifying residence is worth $500,000 and has a mortgage of $350,000, the $150,000 equity would qualify as exempt from unsecured creditor execution (collection).

These are the same exemptions that would apply in a personal bankruptcy setting. Despite being a creature of federal law, bankruptcy law allows states to opt out of the federal exemptions (which pale in comparison to most state exemptions) in favor of the state’s exemptions. Arizona has done so. However, certain of the federal exemptions from judgment execution (e.g., Social Security) supplement the state exemptions.

A significant factor to consider in deciding whether to pursue bankruptcy protection is that these protective exemptions are available without bankruptcy protection.

In bankruptcy, the debtor is required to volunteer all sorts of financial data for the Trustee’s scrutiny. Moreover, the Trustee largely represents the interests of the unsecured creditors. To fail to reveal all pertinent financial data can be a federal crime.

Conversely, outside of a bankruptcy setting, it is generally the judgment creditors’ burden to pursue information on asset existence, location, value, etc. These efforts often cost money, a fact that is seriously weighed by the creditor prior to embarking on such pursuits.

Although there are certainly circumstances under which it is clearly advisable to file for bankruptcy protection, it is not always the best course of action. That is why the McKindles Law Firm provides bankruptcy avoidance planning but not actual bankruptcy filing services. ?