The Arizona Homestead exemption increased from $150,000 to $250,000 as of January 1, 2022. Along with that increase there were other significant changes to the Arizona Homestead law. A Judgment recorded at the appropriate county recorder’s office will be a lien on a Homestead property. The statute reverses the current statutory scheme where a recorded Judgment is not a lien on the homestead pursuant to 964(A) & (B). For Bankruptcy cases filed after January 1, 2022, bankruptcy debtors will need to file Motions to Avoid Judgment Lien to remove these recorded judgment. Several other Bankruptcy issues arise as well.
What about a bankruptcy filed and completed prior to January 1, 2022?
If the Debtor owed a home while filing bankruptcy and still owns that home, the recorded judgment is not a lien on the property period. A.R.S. §33-964(G)(1).
If a Debtor purchased a home after filing bankruptcy, the bankruptcy discharge voids any claim of lien as the judgment is void and unenforceable.
What about bankruptcies filed before January 1, 2022 and still pending?
If a bankruptcy is pending as of January 1, 2022 and results in a discharge, the recorded judgment is not a lien. A.R.S. §33-964(G)(2).
The homestead amount is $150,000 for any case filed prior to January 1, 2022. It does not increase to $250,000.
What about dismissing a pending case and re-filing to get the benefit of the new $250,000 homestead exemption?
1. A Trustee or Creditor could object to the re-filed case as not in good faith and the Bankruptcy Judge may agree. This would result in the re-filed case being dismissed.
2. The re-filed case may not get the automatic stay against foreclosure and other enforcement of debt. If the Debtors had one case dismissed within the prior year, the Automatic Stay as to secured creditors or leases terminates within thirty days, unless upon Debtors’ Motion, the Court orders the extension of that stay within thirty days of filing the case. The Debtors must overcome a presumption of bad faith unless the Debtors show a substantial change of financial condition. Whether the increase of the homestead falls within the definition of a change of economic circumstances will be determined on a case by case basis.
How long must the Debtor have lived in the homestead to get the full $250,000? If Debtor moved into the homestead within a 1215 days (3.33 years) prior to filing the case, (11 USC 522(p)) the homestead is limited to $170,350 in some circumstances. This figure increases subject to annual adjustments; the cited figure is current figure as of January 17, 2022.**
How does Bankruptcy avoid the Judgment Lien? During a bankruptcy case, the Debtor can ask the Court to remove the judgment lien. The Court will grant the Motion of the judgment lien only if there is equity in the property. The Court will not grant the Motion to avoid judgments for domestic support obligations or for criminal fines or restitution.
The Judgment lien can be avoided to the extent that the equity of the house is $250,000 less than the sum of the mortgages and liens senior to the judgment lien. If there is more than $250,000 in equity, the judgment lien will be avoided only to amount of the $250,000 of equity; any amount above $250,000 will remain a lien on the homestead
Example One.: The house is valued at $500,000. The mortgages and other liens (such as tax liens or homeowner association liens) on the house total $255,000. Because the equity is $245,000 and the homestead is $250,000, the Judgment lien can be avoided in full.
Example Two: The house is valued at $500,000.The mortgages and other liens (such as tax liens or homeowner association liens) on the house total $200,000.Judgment lien is $250,000. Because the equity is $300,000 and the homestead is $250,000, $200,000 of the Judgment lien will be avoided and $50,000 will not be avoided.
**The except to this limitation is “any amount of such interest does not include any interest transferred from a debtor’s previous principal residence (which was acquired prior to the beginning of such 1215-day period) into the debtor’s current principal residence, if the debtor’s previous and current residences are located in the same State.” 522(p)(2)(B)
NOTE FROM DIANE: Gary Stickell is a very good consumer bankruptcy attorney. He was also my partner in establishing Arizona’s premier mentoring group for consumer debtor attorneys – Arizona Consumer Bankruptcy Counsel “www.ACBC.org“.
MUSINGS BY DIANE:
Bankruptcy laws, as woven into state laws, are a very complex set of rules. Missing a deadline, by just one day, can result in losing specific protections. Your future financial security is not something to gamble with. Don’t assume you know the answers, most people don’t really know the correct questions to ask. Don’t assume that a “professional” knows the correct answer or answers (some feed you an answer that you want to hear just to get you to sign the retainer). Always get more than one opinion, get lots of referrals, do your own homework, and then use your gut.
Diane is a well respected Arizona bankruptcy and foreclosure attorney. As a retired law professor, she believes in offering everyone, not just her clients, advice about bankruptcy and Arizona foreclosure laws. Diane is also a mentor to hundreds of Arizona attorneys.
*Important Note from Diane: Everything on this web site is offered for educational purposes only and not intended to provide legal advice, nor create an attorney client relationship between you, me, or the author of any article. Information in this web site should not be used as a substitute for competent legal advice from an attorney familiar with your personal circumstances and licensed to practice law in your state. Make sure to check out their reviews.*
When a debtor is in Chapter 13 bankruptcy, it is not unusual that their monthly payments are made through a plan rather than directly to the mortgage lender. At the end of the year, the mortgage lender is likely to send Form 1098 (mortgage interest paid through the year) to the trustee, not the homeowner.
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