VOTERS WIN IN ARIZONA

VOTERS WIN IN ARIZONA

In a 4-to-3 decision, the Arizona Supreme Court expanded the types of assets that are now protected from creditors in the In re Erica Krystal Riggins case.  https://www.azcourts.gov/Portals/0/OpinionFiles/Supreme/2024/CV230123CQ.pdf   

What’s the background? Arizona has a dual process to enact laws:  the people, through the initiative process, and the legislature.  The voter process begins with individuals deciding what needs to be changed in Arizona law.  It may be that the legislature has not yet acted in a particular area, or the voters may want to take action to override what the legislature has enacted.  A petition is drafted with the “proposition” to change or create the law, then circulated to voters to get their signatures.  Once a sufficient number of voters have signed on, the petition is filed with the Secretary of State.  The petition must be filed at least 4 months before the election that will present the proposition to the voters for an up-or-down vote.  

What are the facts?  A group of voters decided (particularly with a dramatic increase in real property values) that the $125,000 amount that could be protected from creditors as to an individual’s residence was just too low. Proposition 209 was drafted to change the amount from $125,000 to $400,000. The Proposition also added other provisions concerning predatory lending, the interest rate on medical debt, and adjustments to the amount of certain personal property that would be safe from creditors.  For example, families needed more money in their deposit accounts to meet the critical needs of their daily lives because of inflation.  So, the Proposition increased the amount in an individual’s deposit account that could not be seized by creditors from $300 to $5,000.

If you compare everything listed in Proposition 209 with all of the property protected under Arizona law from creditors, it is clear that Proposition 209 was not a comprehensive statutory scheme.  (A link to the Proposition may be found here.  https://www.healthcarerisingaz.org/wp-content/uploads/2022/10/2022-Publicity-Pamphlet-Prop-209-Text.pdf.  A link to all Arizona statutory provisions protecting an individual’s property, as of 2019, may be found here.  https://www.parkerschwartzlaw.com/wp-content/uploads/bsk-pdf-manager/2019/05/Arizona-Exemption-Statutes-as-of-5-6-19.pdf.)

While the Proposition was circulating, the Arizona legislature passed Senate Bill 1222, which was signed by Governor Ducey on July 6, 2022, with an effective date of September 24, 2022.  The law added a new provision which protected the refundable portions of federal or state personal income tax credits or child tax credits from an individual’s creditors. (See ARS §33-1126(A)(11).  The link to the Senate Bill may be found here.    https://www.azleg.gov/legtext/55leg/2r/bills/sb1222s.pdf.)

On July 6, 2022, Proposition 209 was filed with the Arizona Secretary of State’s Office and placed on the ballot for the November 8, 2022 election.  It passed.  

In the Arizona bankruptcy court, individuals began filing cases in which they claimed the tax credit refunds were not part of the bankruptcy estates to be distributed to creditors. Objections were soon filed by the bankruptcy trustees that administered the estates, stating that the individuals were not entitled to the tax credit refunds.  The trustees argued that the Arizona law passed by the legislature had been rescinded by the passage of Proposition 209, which contained no provision as to tax credits.  The cases piled up in the Arizona Bankruptcy Court. Something needed to be done to resolve the issue.

An Arizona Bankruptcy Judge sent a question of law to the Arizona Supreme Court:  Did Proposition 209 repeal or affect the legislation that contained the new federal and state tax credit provisions?  The Arizona Supreme Court majority said the answer was no.  If two laws are passed that have different provisions but have one goal, one would tend to read them together in a manner that makes them consistent or harmonious.  This would be particularly true if the two laws were not a comprehensive treatment of a particular area.  As I noted above, neither Proposition 209 nor Senate Bill 1222, which became law, were comprehensive treatments of all of the personal and real property that an individual could protect from creditors. However, both laws protected individuals from creditors by expanding the types of property, or increasing the values of the property, that would be protected.  They were not in conflict.   

Three Justices dissented, but there was a problem. They were incorrect in stating that Proposition 209 was “a comprehensive scheme” as to property that could be protected from creditors. If one compares Proposition 209 and Senate Bill 1222 with the property that is protected from creditors under other statutory provisions, it becomes clear that the two laws merely add to or supplement what is already a part of the statutory scheme.  

It's a win for the Arizona voters.