Prop 209’s Impact on Arizona Bankruptcy Cases

Arizona’s debt collection landscape has shifted with the passage of Proposition 209, the Predatory Debt Collection Protection Act. This new law expanded protections for consumers by increasing property exemptions and placing limits on wage garnishments and medical debt interest.

At Yusufov Law Firm, PLLC, we help Arizona residents understand how these changes impact bankruptcy cases and asset protection. In this article, we’ll explain what Prop 209 means for individuals considering bankruptcy, how it affects creditor actions, and what steps you can take to protect your financial future under the updated rules.

What is Proposition 209?

Proposition 209 is a voter-approved law that took effect on December 5, 2022. It revised several Arizona statutes and touched on crucial areas like wage garnishment guidelines, property exemptions for individuals, and restrictions on medical debt interest rates. Its changes apply to new garnishments filed after December 5, 2022, and it places fresh limitations on how much creditors can seize from your weekly paycheck. It also increased the homestead and personal property exemptions, which play a central role in helping people keep their homes and other belongings.

Before we move on, keep in mind that this law primarily impacts wage garnishment, property exemptions, and interest on medical debt. Other forms of debt are still governed by previous rate allowances. Still, Prop 209 introduced new protections for a range of individuals, many of whom may be deciding whether bankruptcy is the best path forward.

How Prop 209 Affects Bankruptcy Filings

Prop 209 expanded multiple exemptions and created friendlier terms for those considering bankruptcy. A higher homestead exemption means more protection for your home’s equity while generous personal property exemptions help families keep everyday items. These enhancements aim to reduce the stress of mounting debt obligations and offer some breathing room to those filing for bankruptcy in Arizona.

Increased Homestead Exemption

The new homestead exemption rose from $250,000 to $400,000. That figure is adjusted annually for cost of living, so as of January 1, 2025, it’s $425,200. This applies to any primary residence you own and protects your real property equity from creditors in either Chapter 7 or Chapter 13 bankruptcy.

For example, assume your home is valued at $500,000, and there’s a $200,000 mortgage balance. You have $300,000 of equity in the property, and that entire sum remains safe from most creditors under the current rules. However, you still need to watch out for federal restrictions under Bankruptcy Code Section 522(p). This section places a cap on the homestead exemption for homes acquired within 1,215 days of filing, which can limit the amount of equity you can claim if your ownership is relatively recent.

Below is a quick overview of the record-setting changes that emerged thanks to Prop 209:

These higher limits can make Chapter 7 or Chapter 13 a more attractive option for those aiming to keep their homes and personal property. That said, every case is distinct, so it’s smart to consider your entire financial picture before filing.

Expanded Vehicle Exemption

Prop 209 boosted the vehicle exemption from $6,000 to $15,000 of equity for one motor vehicle. If both spouses in a marriage file together, they can each claim the $15,000 exemption on separate vehicles or add them to a single shared vehicle, securing $30,000 of combined equity. Also, if you or a dependent has a physical disability, you can protect $25,000 in a single car.  These numbers increase annually, as shown in the table above.

This greater allowance gives filers the ability to hold onto a car with a more substantial equity value. Cars are often a lifeline for work, school, and family obligations, so these updates are a huge relief for many individuals.

Increased Bank Account Exemption

Under the new proposition, up to $5,000 in a single bank account is exempt (this amount is adjusted annually). That means if you have one checking account, you can shield up to this amount on the date of filing. The figure is tallied on the day you file, so timing your bankruptcy is crucial. Money that arrives after your filing date is generally not a concern in Chapter 7, but it’s always a good idea to consult with a bankruptcy attorney on your specific situation.

Household Goods and Furnishings Exemption

The measure also drove the exemption for household goods and furnishings to $15,000 (and increased annually), a jump from $6,000. This covers items like furniture, appliances, and personal-use electronics. The fair market resale value normally prevails when determining an item’s worth. Large couches or big-screen TVs often depreciate quickly, so many filers can keep these possessions unchallenged in a Chapter 7 case.

Wage Garnishment Limitations

Prop 209 not only strengthened exemptions but also altered the percentage of wages creditors can garnish. The maximum share of disposable earnings that a creditor can claim is now the smaller of 10% of disposable income or 60 times the highest minimum wage in effect. This shift replaced the older threshold of 25%. Child support or spousal maintenance garnishments remain governed by separate legal guidelines, so the new limits do not affect them.

As of 2025, the state minimum wage is higher than the federal minimum wage, so if an individual’s disposable pay is at or below 60 times the state minimum wage each week, no garnishment can be taken. Whether the older 25% or the newer 10% figure applies depends on the timing of the garnishment filing. That nuance can have serious implications for both employers and debtors. However, as soon as a new garnishment action starts, Prop 209’s rules come into play.

Interest Rate Cap on Medical Debt

Prop 209 also places a tight cap on interest rates for medical debt. It sets the ceiling at either 3% per year or the weekly average one-year constant maturity treasury yield, whichever is lower. This cap applies solely to medical debt, without affecting rates on credit cards, personal loans, or other debt categories. For people facing large healthcare bills, this limit can reduce the pressure, as lower interest rates means more manageable monthly payments.

Dealing with Prop 209 and Bankruptcy? Yusufov Law Firm Can Help

If you’re facing financial stress, you’re not alone—and you don’t have to figure it out by yourself. At Yusufov Law Firm, we help clients in Mesa, Phoenix, and Tucson explore real solutions through bankruptcy, including how Proposition 209 may protect your assets. Whether it’s medical debt or concern over how bankruptcy may affect your home, we’re here to help. Call us in Tucson at (520) 745-4429 or in Mesa/Phoenix at (480) 788-0098 or visit our Contact Us page to connect. Let’s talk about a path forward—clear, compassionate, and tailored to your needs.