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The Arizona Bankruptcy Exemptions Wars Begin: The Armistice Ends November 15th!

By Joseph McDaniel, Esq.

The Arizona Bankruptcy Exemptions aren't written in stone. They were written by men and women, and interpreted by men and women, and all of those folks have had opinions about what should or should not be exempt.

And, as we know from the movie "Roadhouse", opinions differ!

Over the last 30 years, I've gotten to watch a bunch of exemption battles rage. On the one hand, there was a spirited debate in the case law about whether 11 USC 522 meant that a husband in a bankruptcy case got his list of exempt property, and that the wife also got her list of exempt property.

I'll spare you the suspense; the "double-dippers" won, and that was the correct result.

And anytime exemptions change, there are arm-wrestling matches about when the new exemption becomes effective, and that's always good for a few thousand gallons of ink.

There have also been exemption challenges to the concept of the "opt-out" exercised by the Arizona Legislature; and frankly, one thing that our legislature ought to do sometime soon is to permit Arizona Residents to choose between the laundry list of Federal Exemptions, and the State Exemptions, as some other states do (although, to be fair, most state are "opt-out" states).

Another recently hot topic is which state's exemption may apply in a particular case, and there's a website called Exemptions Express that's very helpful in the analysis of that issue; that's why a trustee will ask you whether you have been an Arizona 

But the next big fight is going to be over this topic: are computers "tools of the trade" under the Arizona Exemption Statutes? And, if so, are there additional requirements, not in the caselaw and not in the statute,  necessary to qualify them as exempt?

I plan to post all of the "tools of the trade" cases here on my blog, so you can decide for yourself.

This is not an academic concern!

One of the smart Arizona Bankruptcy Trustees has served notice that he will be objecting to every computer claimed as a tool of the trade in his cases (about 1/20th of the cases that get filed around here) unless they meet stringent requirements that I have not yet found in the caselaw or the stature.

In most cases I've seen and filed lately, computers (and  used computers have some value, although very little) have been listed as tools of the trade for just about everybody.

After all, think about being a lawyer without a computer; would it be possible? Well, you couldn't be a bankruptcy lawyer, because we're required to file our bankruptcy cases electronically.

How about a schoolteacher? Is a schoolteacher able to avoid being fired if he doesn't file his lesson plans electronically?

Even a truck driver is often required to monitor his schedule online, which seems to me to make that computer a tool of the trade; and doubly so if he uses it to makes his mandatory notations as he drives. 

Now, there may be people who can work without owning a computer these days, but I'm hard pressed to think of a lot of folks who don't use a computer in the course of their jobs.

Who will win the computer exemption wars?

I have no idea.

Because an objection to exemptions is resolved in a careful, measured pace in most cases, and the appeal from an adverse response can take much longer. Think years, not weeks or months.

The caselaw is fairly clear that exemptions are to be construed liberally in favor of the debtor; there is not a requirement in the tools of the trade exemption that I recall, as I sit here, that the tool be used exclusively for employment, or that it be mandatory for employment.

Those may be useful tax analysis concepts, but I think they are less useful in bankruptcy exemption analysis.

After all, a carpenter would normally list his tools as tools of the trade, and there would normally not be an issue about that. But if somewhere in the statute there is a requirement that the tools be used exclusively at work, the carpenter could lose that exemption if he hammers a nail in his wall to hang a picture. 

And an accountant would normally list a computer as a tool of the trade with no nevermind, but under the trustee's proposed restrictions on that exemption, if his kid used that computer to do homework, the Bankruptcy Court should sustain an objection to the exemption of that computer.

I am going to reprint the cautionary memo from the smart Arizona Bankruptcy Trustee in its entirety when I figure out how to do that, so you can read it and make up your mind which side you want to cheer for in our upcoming bankruptcy exemption wars!

p.s. this will be a non-issue in most cases; recall that a trustee will normally not want to fight about exemptions in a case where the arguably non-exempt property will net the estate less than $800; but we'll still get to see a lot of activity in this area if the smart trustee in question really wants to fight in every case where a computer worth $100 is listed as an exempt tool of the trade, unless the debtor would be fired from their job without the computer, and unless the computer is used exclusively for work.

Seems a little harsh to me; but that's probably just me.

But you'll be able to do the analysis for yourself as you see the cases on exemptions in Arizona; I'll have Nina dig 'em out of fastcase, and you'll see 'em in all their glory!

Full post as published by Arizona Bankruptcy Attorney Blog on November 07, 2010 (boomark / email).