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The Inter-relationship between Annuity Contracts and Bankruptcy Law in Arizona

Perhaps you have heard the commercials. Some insurance company offers to put your money into an annuity and give you monthly pay-outs at some point in the future. An annuity contract may be entered into in order to save for the future – for expenses like college or retirement.

The definition of annuity, according to, is as follows:

“An annuity is a contractual financial product sold by financial institutions that is designed to accept and grow funds from an individual and then, upon annuitization, pay out a stream of payments to the individual at a later point in time. The period of time when an annuity is being funded and before payouts begin is referred to as the accumulation phase. Once payments commence, the contract is in the annuitization phase.”

So lets say that you purchased an annuity 30 years ago and its now worth $ 150,000.00. You have lots and lots of bills, and few assets. In fact, the annuity is your major asset. Although you cannot pay your bills, and you are thinking about filing a bankruptcy, your are very afraid that you will lose the annuity in the bankruptcy. Do you need to be afraid?

In Arizona, an exemption statute referred to as A.R.S. § 33-1126(a)(7) can save your annuity contract for you in specific situations. You must have had the annuity for at least two years, and you must have named a specific certain type of person as your beneficiary under the annuity.

The statute reads as follows:

“33-1126. Money benefits or proceeds; exception
A. The following property of a debtor is exempt from execution, attachment or sale on any process issued from any court: ….

7. An annuity contract where for a continuous unexpired period of two years that contract has been owned by a debtor and has named as beneficiary the debtor, the debtor’s surviving spouse, child, parent, brother or sister, or any other dependent family member, except that, subject to the statute of limitations, the amount of any premium, payment or deposit with respect to that contract is recoverable or avoidable by a creditor pursuant to title 44, chapter 8, article 1 is not exempt. The exemption provided by this paragraph does not apply to a claim for a payment of a debt of the annuitant or beneficiary that is secured by a pledge or assignment of the contract or its proceeds. For the purposes of this paragraph, “dependent” means a family member who is dependent on the debtor for not less than half support.”

Essentially, if you have had the contract for two years, were not insolvent when you bought the contracts, and have one of the enumerated persons listed as the beneficiary, the annuity contract will be exempt. The special provisions of Arizona Title 44, chapter 8, article 1 relate to transfers made while insolvent or intentionally to defeat creditors. If the transfer was made at such a time, then the safest thing to do is to wait four years after purchasing the annuity before filing a bankruptcy.

The good news is, with proper planning and appropriate legal advise, you do not have to lose your annuity when filing for bankruptcy relief. However, it is important that you meet personally with a bankruptcy attorney, like the attorneys at Campbell & Coombs, to discuss your personal situation and take appropriate action to insure that you are protected to the fullest extent of the law.