Last week, the differences between different types of personal bankruptcy, Chapter 7 and 13, were discussed and one of the differences briefly touched upon was bankruptcy exemptions.
When property is exempt from the bankruptcy process that means it will not be liquidated in order to satisfy creditor's claims. Under Chapter 7 bankruptcy, some assets are sold in order to repay creditors as much as possible, but the list of exemptions in Arizona is very extensive and includes retaining possession of the house, jewelry and car up to a certain value. Since Chapter 13 bankruptcy involves repaying creditors through the debtor's income over a fixed period of time, the debtor may be able to hold onto more of their assets.
However, the role of exempt property still plays a role in Chapter 13 because it is used to determine the repayment plan the debtor must follow. When determining the repayment plan, the value of non-exempt property is used to determine the base line for repaying creditors-this means creditors must be paid at least as much as the value of the non-exempt property.
As mentioned previously, the list of bankruptcy exemptions available to bankruptcy filers in Arizona is very comprehensive and can even include clothes, household items and the home itself, up to a certain value. Since determining whether property is exempt is very important in the bankruptcy process, it may be in a filer's best interests to consult an experienced attorney for clarification on the matter.
Source: FindLaw, 'Exempt property in a Chapter 13 Bankruptcy," Accessed on Nov. 24, 2015