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Arizona has a law which allows a homeowner to protect $150,000 in equity from general creditors.  It does not apply to mortgage companies or any creditor who has been given a consensual lien from the homeowner.  It is called a “homestead exemption”.  It applies to all people who have an “interest” in property in Arizona.  It applies whether someone files for Bankruptcy or not.

Someone with a home that has no more than $150,000 in equity can protect the equity for up to 18 months after the home has been sold by putting the sales proceeds in a separate account and not using the account for anything other than housing expenses like buying a new home.  The money cannot be “comingled” (mixed) with other money and cannot be used for purposes other than housing.

Recently the Arizona Federal District Court ruled that a Debtor “lost” their homestead exemption because the money was “comingled” and was used for purposes other than buying a new home.  The case is called Flatt v Mullenand was decided last November. 

If you are planning on selling your house and want to protect the equity from your creditors, it is important that you consult with counsel and protect your equity as much as you can.