When you file for bankruptcy relief, nearly everything you own on the date of the bankruptcy filing becomes property of the bankruptcy estate.

Exemption laws allow you to retain certain assets. If an asset is property of the bankruptcy estate and not exempt, then the bankruptcy trustee has authority to liquidate it for the benefit of your unsecured creditors. Once your case is closed, all properly disclosed exempt assets are yours to keep.

You are eligible to file bankruptcy in the State of Arizona if you have lived here for the greater part of the 180 day period prior to the petition date. In other words, if you relocated from California to Arizona at least 91 days ago, you may file bankruptcy in Arizona. However, being eligible to file in Arizona does not necessarily mean that you can use the Arizona exemptions to protect your assets.

The set of exemptions that applies to your case is determined, in part, by where you have continuously lived over the two year period prior to filing. So, if you moved to Arizona from California one year ago, the Arizona exemption laws are not available to you. Whether the California exemption laws apply to your case or not depends on how long you lived in California.

Having to take non-Arizona exemptions isn’t necessarily a bad thing. How it impacts you simply boils down to the type of property that you own. For example, if the California exemptions apply, and you happen to own a valuable surfboard (not to imply that all Californians are surfers), you may be better off using California’s laws because you can protect the surfboard with a “wildcard” exemption. Given that Arizona does not have a wildcard exemption, you would be forced to part with your surfboard had you been living here for two years prior to filing bankruptcy.

An experienced bankruptcy attorney will do something called “exemption planning”. Specifically, the attorney will analyze which set of exemptions apply to your case at that particular point in time, and whether you should file bankruptcy now or delay the filing date to take advantage of a better set of exemptions. The attorney will also advise you regarding the possible liquidation of any non-exempt assets, as well as the appropriate use of proceeds, prior to filing bankruptcy. It is generally best to have a “no asset” case whenever possible because once bankruptcy trustees have an asset to liquidate, they tend to maximize the distribution to unsecured creditors by liquidating any additional non-exempt assets that may be available.

Applying the correct set of exemptions is critical to your bankruptcy case when you own assets. You may assume that you don’t need to worry when you don’t own much of anything, but did you know that a tax refund is an asset? And tax refunds are not exempt under Arizona law. Bankruptcy trustees will take advantage of mistakes with exemptions. If you have not lived in Arizona continuously for a 24 month period, a competent bankruptcy attorney will analyze the impact of that on your case.