Is Bankruptcy a Good Alternative For Arizona Boat Owners?
Even if the debt you’re facing keeps growing and growing beyond your control, you may be putting off filing bankruptcy because you don’t want to lose any treasured assets or heirlooms. And if you own a boat, this can be a special concern in your bankruptcy. Thus, does declaring bankruptcy mean selling your beloved boat? Or is there a way to file in Arizona and protect your boat and other possessions? Our Arizona bankruptcy lawyers are here to discuss how to protect your boat in a bankruptcy, that is, if you should at all. If you have additional questions on this subject, call 602-609-7000 for your free consultation.
Can I Keep My Property If I File Bankruptcy?
Many clients come to us with the assumption that once they declare bankruptcy, anything they own of value will be taken to pay off their creditors. Thankfully, this isn’t true. And how much of your property will be protected in bankruptcy depends on the chapter you choose, and what kinds of exemptions are available in your state. Unlike some other states, Arizona doesn’t allow bankruptcy debtors to use federal exemptions, so you will only have Arizona bankruptcy exemptions available if you file here.
Chapter 7 bankruptcy is a liquidation bankruptcy that absolves you of many types of unsecured debts. That means that when your case is discharged, you will no longer owe credit card debts, medical bills, personal loans, and more. But there obviously must be standards in place to keep people from abusing this immense benefit. One of these is setting income limits for Chapter 7 qualification. Another standard meant to dissuade people with the means to pay their debts from filing Chapter 7 bankruptcy is exempt property. Any property that isn’t exempt in a Chapter 7 bankruptcy filing can be taken by the bankruptcy trustee, auctioned off, and used to pay creditors, with the trustee keeping a percentage of the sale as well. Exemptions apply to the equity you hold in a property, not its market value. For example, the homestead exemption in Arizona is $150,000. Let’s say your home is worth $350,000, but you have $250,000 left on your mortgage. That would bring your equity to $100,000 which is within Arizona’s homestead exemption.
Chapter 13 bankruptcy works completely differently than Chapter 7 bankruptcy. Instead of wiping your debts away, it reorganizes them into a more reasonable payment plan. You will also be protected from your creditors while you pay off your balance. That also means you will have time to catch up on payments in arrears before your creditors can act. For example, let’s say you are a few months behind on your car payment, and your lender has made it clear they intend to repossess your vehicle. If you file Chapter 13 bankruptcy, your balance in arrears, as well as the rest of your loan balance, will be spread out over your 3-5 year payment plan. Your lender can’t repossess the vehicle in that time, and you will own the vehicle in full after your case has been discharged.
Boats In An Arizona Chapter 7 Bankruptcy
Unfortunately, keeping a boat in an Arizona Chapter 7 bankruptcy can be tricky. There is no Arizona exemption that is meant especially for boats. And unlike some other states, Arizona doesn’t offer a wildcard exemption that can be applied to any asset the debtor chooses. So the exemptions you can use on a boat will be limited, may not apply to your situation, and might need to be used at the expense of other valuable assets you own.
Since there are no boat or wildcard exemptions in Arizona, you might be able to use Arizona’s motor vehicle exemption on your boat, assuming it is a motorized boat. The motor vehicle exemption in Arizona is $6,000 for an individual, or $12,000 in one vehicle for a married couple, or $6,000 each in two vehicles for a married couple. This exemption will only work for someone with a relatively low-value boat, and who doesn’t own a car (or only owns one car with less than $6,000 equity with their spouse). You may also encounter struggles with the trustee over this issue, as some of Arizona’s bankruptcy regulations specify a “car” rather than a “motor vehicle.” You need to discuss this issue in depth with your bankruptcy attorney before applying a motor vehicle exemption to your boat.
You may have another avenue to protect your boat in bankruptcy if you use it as your primary residence. If you own a houseboat, this can be protected using Arizona’s $150,000 homestead exemption. However, if you own a house or any other real estate, using the exemption on a houseboat would put these properties at risk.
Boats In Chapter 13 Bankruptcy In Arizona
Chapter 13 bankruptcy reorganizes your debts into one consolidated payment plan that is based on how much disposable monthly income you have available. Because you will actually be paying off your debts (at least most of them), you can keep assets without the same concerns about bankruptcy exemptions that exist in Chapter 7 bankruptcy. Of course, the trustee isn’t going to let you discharge your unsecured debts and secondary mortgages in a Chapter 13 if you’re holding onto a yacht. But if you own a reasonable boat that you’d like to keep, Chapter 13 bankruptcy may be a more viable option for you. Contact our firm at 602-609-7000 to schedule your free time to discuss the possibilities with one of our Phoenix bankruptcy lawyers.
Options When You Don’t Own Your Boat in Full and Need to File Bankruptcy
Many people have a deep love for their boats, but others describe the day they sell their boats as the happiest day of their lives. If you still owe a balance on your boat loan, you may need to reaffirm that debt in your bankruptcy. However, if you owe more on the boat than what it’s worth, it has mechanical issues, etc., bankruptcy actually gives you a chance to surrender the boat and the debt associated with it.
The other choice you will have is to reaffirm your loan for your boat. This option is only available if the equity in your boat is exempt. A loan reaffirmation essentially means that you are confirming to the court that you want to honor the terms of your loan. You will need to be able to show that you will be able to afford the payments going forward, and that it isn’t an unsound financial investment- e.g., you owe more on the boat than it’s worth. Your lender will be responsible for preparing the reaffirmation agreement, which may include a few minor changes. All of this must be approved by the Bankruptcy Court. The court can also disapprove of a reaffirmation of the boat is too much of a luxury item.
Contact An Arizona Bankruptcy Attorney To Protect Your Boat & Other Treasured Items
When you file bankruptcy, it’s more than your boat at stake. You could also have a home, vehicle, jewelry, or other assets that you value at risk as well. This is one of the several reasons that you should file your bankruptcy with an experienced professional. Our Arizona $0 bankruptcy team has collective decades of experience finding creative solutions for our clients’ issues, such as nonexempt property. Our Phoenix Bankruptcy Lawyer and staff also offer payment plans for qualified clients starting as low as ZERO DOLLARS DOWN. To learn more about our services, call 602-609-7000 or use our online scheduler to request your free consultation with one of our dedicated Arizona Zero Down bankruptcy lawyers.