New Law in Arizona Changes Homestead Exemption for Judgment Creditors

A bill has been signed into law in Arizona that raises the homestead exemption on judgments to $250,000 from $150,000, but has “gutted the protections” that were previously included in the state, according to one bankruptcy attorney, because the law now allows any judgment to be attached to a home and allows judgments to be paid out when a homeowner refinances his or her mortgage.

As well, the judgments can be applied retroactively.

The new law, HB 2617, goes into effect on December 31. The bill originally passed unanimously in the state House, but an amendment was added in the Senate requiring judgments to be paid out first during refinancings, and it passed in the Senate by a vote of 18-12. When it went back to the House for a final vote on the amended bill, it passed by a vote of 37-27.

Raising the homestead exemption may have been great, but the other changes “made it completely worthless to everybody that owns a house in the state of Arizona,” said Lamar Hawkins, a bankruptcy attorney in Arizona, in a published media report.

The bill is generally considered to be helpful to homeowners who are in good financial shape, and problematic for those who are not.

Under the bill, civil judgments will automatically attach to a property, including a family’s homestead, and will apply retroactively to “all judgments without regard to when the judgment was recorded.”

Critics of the bill say it is going to cause a “deluge” of new filings in bankruptcy courts, with “thousands of cases” being reopened because creditors with a judgment will not have them discharged during bankruptcy proceedings. One bankruptcy attorney called the bill a “Trojan horse” that on its face looks to be good, but is not once you read all of the bill’s provisions.

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