Under a recent Arizona bankruptcy decision, a business’s vehicles could be at risk in the business owner’s bankruptcy case.
Letizia Case
On January 14, 2014, Judge Haines held in the Letizia case that debtors in a bankruptcy case, who had conducted business as sole proprietors, could not use Arizona’s personal vehicle exemptions for vehicles that were primarily used for business purposes. Rather, the debtors could use Arizona’s “tools of trade” exemption for the vehicles. The Court made clear that even though the debtors were not conducting business through a formal business entity (e.g. an LLC), the Arizona bankruptcy exemption for vehicles may only be applied to vehicles used primarily for personal or household purposes.
See In re Letizia, 2014 Bankr. LEXIS 179 (Bankr. D. Ariz. Jan. 14, 2014).
Arizona Exemptions
Arizona law requires its residents to use state law exemptions, and those exemptions permit individual debtors in bankruptcy to keep certain assets through the bankruptcy process. As of this date, debtors in Arizona are each permitted to exempt $6,000 in equity in a vehicle (the value of a vehicle minus any loans). And, debtors are each permitted to exempt $5,000 in “tools of trade” that generally include tools, equipment, client lists, and intellectual property that are primarily used by debtors to conduct business activities.
Why it Matters
The Letizia case is significant because without proper planning, a bankruptcy filer could be unexpectedly forced to turnover a vehicle or business assets. It is critical that a potential bankruptcy filer work with a qualified Arizona bankruptcy attorney to analyze business versus personal asset issues and to properly apply exemptions.
