As the final part of our review of Arizona House Bill 2617 (AZ HB 2617), we will review the impact of the Bill on individual judgment debtors. The first two blogs can be found here.

AZ HB 2617 increases the homestead exemption amount from $150,000 to $250,000 and makes no changes to a homeowner’s eligibility to qualify for the homestead exemption.

A nonconsensual lien, including a judgment lien from a civil judgment, now entitles a creditor to a forced sale of the homestead property if the debtor’s equity in the real property exceeds the homestead exemption amount. The previous language only allowed a forced sale if the judgment debtor’s equity above the homestead exemption amount exceeded the amount of the judgment lien on the property.

Judgment debtors with valid outstanding civil judgments may want to consider filing for bankruptcy before January 1, 2022. If they fail to file before that date, a judgment lien will automatically attach to their homestead property. This will inhibit the judgment debtors’ ability to tap into their home’s equity through a cash-out refinance and could even make it harder to sell their home.

However, some judgment debtors may be incentivized to wait to file bankruptcy until after January 1, 2022. While a judgment lien may attach to their property after that day, the judgment debtor will also be entitled to a larger homestead exemption. Some commentators to the AZ HB 2617’s passing have proposed the viability of using avoidance actions to strip judgment liens from homestead properties. A debtor can avoid a lien if fixing the lien would impair the debtor’s ability to claim an exemption. Enforcing a judgment lien would have the effect of cutting into a judgment debtor’s homestead exemption. A lien impairs an exemption when the sum of the lien, all other liens on the property, and the amount of the exemption exceeds the property’s value. The exemption amount has now increased by $100,000, so a lien that previously did not impair the exemption may do so now. This alternative will need to be analyzed on a case-by-case determination for each judgment debtor client.