Arizona Attorney - December 2013

stated that “the District Court
for the District of Nebraska
noted that ‘other jurisdictions have held
that the term “provisions” refers to food or
food stuffs which a debtor can show are
actually being or will be eaten by his fami-
ly.’” 8 Thus it appears that the term “provi-
sions” is redundant and should have
been deleted from the new law.
Nevertheless, the exemption, in part,
allows a debtor to protect six
months’ worth of food that the
debtor and his or her family intend
to eat.

Another concern is that, although exemption statutes are to be interpreted liberally, some recent bankruptcy cases demonstrate that such liberality has its limits. For example, some creative debtors’ attorneys have argued, without success, that grocery store gift cards in an amount ranging from $7,000 to $10,000 should be exempt under this provision. 9 Those courts have found that the exemption applies only to food actually in the debtor’s possession at the time of the bankruptcy filing.

Last, with respect to the exemption for
fuel, the statute arguably remains outdated.
For most people, one does not have “fuel”
that is stored on property to provide ener-
gy for heating and cooking. As acknowl-
edged by one court in the Glimcher case,
“[W]hen the exemption statute was first
written in 1913, the legislature probably
had in mind either coal or wood.” The
Legislature’s apparent intent was to ensure
a necessary supply of fuel for heating.
Therefore, the exemption, as written, may
provide little protection.

Today, utility services provide the resources necessary for heating10 and cooking. Many people struggling with debt are required to pay significant deposits to receive utility services. Several Arizona bankruptcy trustees, however, assert that those deposits are nonexempt. Therefore, a trustee may require a debtor to pay over the value of those deposits, which in some cases total several hundred dollars and, in all cases, without which a debtor cannot receive necessary utility services. Although at least one Arizona Bankruptcy Court has held that gas and electricity deposits are exempt as “fuel,” 11 the Legislature should consider amending section 33-1124 to modernize the exemption to explicitly protect all utility security deposits.

Although paying a few hundred dollars
on account of utility deposits may not
appear at first glance to be an onerous
burden on a debtor, the true impact can
be better understood when one also con-
siders amended section 33-1126( 9).
Under the amended statute, at the time of
filing, a debtor cannot have more
than $300 in one bank account (or
$600 for a married couple). This
requires a person contemplating
bankruptcy to liquidate all bank
account funds or surrender any
additional funds upon filing.
Obviously, many people who file
bankruptcy are of extremely limited
means. Thus, the funds in their bank
account are their only “safety net” in
times of emergency. The $300
exemption for bank accounts is
arguably insufficient to provide a
safety net to a struggling family, let
alone allow a debtor to “buy back”
critical nonexempt assets, like utility
deposits, and to facilitate a meaningful
“fresh start.”
In summary, although suggestions for
improvement could be made on any new
law, H.B. 2325 is a substantial step in the
right direction. It streamlines and modern-
izes Arizona’s exemption statutes in a way
that provides greater protections to
Arizona families without unfairly prejudic-
ing creditors who are seeking to collect
debts. We hope that it is a first step in a
sequence of many to continue to improve
the exemption statutes in this state.

26 ARIZONA ATTORNEY DECEMBER 2013 www.azbar.org/AZAttorney
endnotes

1. There are some federal exemptions, such as the protection of social security funds under 42 U.S.C. § 407 (“The right of any person to any future payment under this subchapter shall not be transferable or assignable, at law or in equity, and none of the moneys paid or payable or rights existing under this subchapter shall be subject to execution, levy, attachment, garnishment, or other legal process, or to the operation of any bankruptcy or insolvency law.”). Also, other chapters of the Arizona Revised Statutes contain some other relevant exemptions. See

A.R.S. § 20-1131 (exemption of life insurance proceeds).

2. “Process” is defined as “ execution, attachment, garnishment, replevin, sale or any final process issued from any court or any other judicial remedy provided for collection of debts.” A.R.S. § 33- 1121( 2).

3. See Wilson v. Lowry, 52 P. 777,

779 (Ariz. 1898) (“It is the
well settled policy of the
courts to liberally construe
those humane and beneficient
provisions of the law exempt-
ing certain property from
execution for the payment of
debts. The state has an interest
in protecting families, and
especially helpless children,
against pauperism, and secur-
ing to them the means of
reasonable comfort and
education.”).

4. A.R.S. § 33-1101.

5. Id. § 33-1126(A)( 9). As amended, the exemption increases to $300 for a single individual and $600 for a married couple.

6. This is the procedure for a Chapter 7 bankruptcy proceeding, which is a liquidation bankruptcy and the most common type of filing. Exemptions are also relevant in individual Chapter 11 and 13