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Arizona considers revamping bankruptcy exemptions

A person filing for bankruptcy in the state of Arizona generally doesn't have to give up everything he or she owns in order to get out of debt. The law spells out certain bankruptcy exemptions for such things as a homestead, up to a certain dollar amount.

Arizona bankruptcy law also allows filers to keep up to $4,000 worth of personal property, though it is very specific about exactly what kinds of property qualify for the exemption. For instance, the law indicates how many chairs and lamps one may keep.

A bill now working its way through the legislature would change that. House Bill 2325 would maintain the $4,000 limit, but eliminate the requirements placed on specific household items. If made into law, the bill will allow those filing for bankruptcy greater freedom in deciding what they want to keep.

Exactly what exemptions apply depends upon what bankruptcy plan a person chooses. The two types of bankruptcy available to the average consumer are Chapter 7 and Chapter 13. Chapter 7 is typically a more rigid system with much limited exemptions. Chapter 13 tends to be less rigid and more adaptable to a person's needs. Those who file for Chapter 13 are generally more likely to keep their homes than those who file for Chapter 7, although some of those who file for Chapter 7 are also able to keep their homes.

A Chapter 13 bankruptcy reorganizes a person's debts and establishes a plan to pay them off within three to five years. Bankruptcy is often a good way for those struggling with debt to get on track to a stronger financial future. And, if this new bill becomes law, Arizona residents who file for bankruptcy could have a lot more freedom to decide what property they want to keep as they discharge their debts.

Source: Arizona Daily Star, "Proposal would change what bankrupt Arizonans can keep," Howard Fischer, Feb. 9, 2013