Arkansas is nicknamed the Natural State, and a drive through it makes it easy to see why. The state is home to the southern edge of the Ozark Mountains, the thermal waters of Hot Springs, the aptly named Arkansas River, 52 state parks, and seven national park sites.
Arkansas also is home to nearly 3 million residents, not all of whom can afford to explore all the state’s natural beauty. Though unemployment is hitting record lows in the state, Arkansas’ rate of GDP growth ranked among the worst in the nation during 2016. And of course, those employment gains are not spread evenly through the economy, either geographically or by industry.
For those Arkansans who have been left behind by recent gains in employment, the possibility of filing bankruptcy may offer some welcome relief to their financial struggles. Title 11 of the U.S. Code is known as the U.S. Bankruptcy Code, and it provides for several different types of bankruptcies.
One type of bankruptcy that is popular for individuals is Chapter 7 bankruptcy. This post summarizes Chapter 7 bankruptcy in Arkansas, and provides an overview of the most important property exemptions available for Arkansans who file for bankruptcy. Of course, readers would be well-advised to consult with a knowledgeable Arkansas bankruptcy attorney before deciding how to proceed.
Chapter 7 Bankruptcy: How does it work?
Chapter 7 bankruptcy is known as a liquidation bankruptcy, in which a bankruptcy trustee gathers and sells — e.g., “liquidates” — the debtor’s non-exempt property. The trustee then applies the proceeds from those sales to the debtor’s outstanding debts. When the bankruptcy case is over, the Court will discharge the debtor from further liability on most of his or her existing unsecured debts.
The trustee’s authority to sell property in a Chapter 7 bankruptcy is limited to non-exempt assets, not necessarily to all the debtor’s assets. The Bankruptcy Code contains a list of federal exemptions, but permits each state to enact its own list of exemptions and decide which list its residents may use. Some states have opted out of the federal exemptions, requiring debtors to use that state’s exemption list. Other states permit the debtor to choose either the federal or state exemptions.
Who can file for Chapter 7 bankruptcy in Arkansas?
A person can file for Chapter 7 bankruptcy in Arkansas only when venue is proper there. Generally speaking, venue is proper in Arkansas only when the debtor has lived in Arkansas for the majority of the six months prior to filing.
But just because a debtor files for bankruptcy in Arkansas doesn’t mean that Arkansas’ exemption laws will apply to that case. Similarly, filing for bankruptcy in a state other than Arkansas doesn’t guarantee that Arkansas’ exemption laws won’t apply to the case. Instead, the bankruptcy court will apply the exemption laws of the state where the debtor lived for the two years prior to filing. If the debtor lived in more than one state during that two-year period, the court will apply the law of the state where the debtor lived the longest during the six months before those two years.
Example: Jason files for Chapter 7 bankruptcy in Arkansas on June 1, 2017. He moved to Arkansas from Colorado, where he had lived his whole life, on January 1, 2017. Venue is proper in Arkansas, but the court will apply Colorado’s bankruptcy exemptions to Jason’s case.
Arkansas vs. Federal ExemptionsThe top 5 exemptions under Arkansas Code compared to federal law.
|Type of exemption||Arkansas law||Federal law|
|Homestead||$800 to $2,500, or 80 acres with no regard to value, depending on two state homestead exemption options||$23,675 of equity in principal place of residence|
|Personal property||Clothing exempt without regard to value; $200 or $500 aggregate for all other personal property||$12,625 aggregate value on household goods, plus federal wildcard exemption applicable ($1,250 plus $11,850 of any unused portion of your homestead exemption)|
|Wages||60 days' earned but unpaid wages, minimum $25 weekly||Income you've earned but not yet received becomes part of your bankruptcy estate|
|Pension/retirement||Contributions to an IRA up to one year before filing bankruptcy, up to $20,000 (also subject to aggregate limit like personal property)||Exempt, with a cap of about $1.28 million on IRAs and Roth IRAs|
What are the Arkansas bankruptcy exemptions?
In Arkansas, Chapter 7 debtors can choose to use the Bankruptcy Code’s federal exemptions or Arkansas’ state exemptions. However, they cannot use both, and they cannot pick and choose some federal exemptions and some state exemptions.
For ease of reference, what follows are some of Arkansas’ most significant bankruptcy exemptions, along with their federal counterparts in the Bankruptcy Code. Note that many of the following exemptions include a limit on value. Those limitations refer to a person’s equity in the property, not the total value of the property. A person’s equity is equal to the difference between the property’s value and any debt secured by the property.
Example: Sheila, who is married, owns a house on a quarter-acre of land in Little Rock. The land and house are worth $50,000, but subject to a $30,000 mortgage. Accordingly, Sheila’s equity in the real estate is $20,000. Because of her equity and the size of the homestead, she could exempt her homestead using either the federal or state exemptions.
Also bear in mind that if a debtor’s equity in what would be exempt property exceeds the exemption limit for that property, then the bankruptcy trustee will be able to sell it. In that event, the trustee would return to the debtor an amount equal to the exemption limit.
Arkansas state law provides two alternative homestead exemptions, and the debtor must choose only one.
Option 1: A debtor who is married or the head of a family may exempt his or her homestead under the Homestead Exemption Act, Ark. Code Ann. § 16-66-210. A rural homestead — one that is not located in a city, town, or village — is exempt up to 80 acres without regard to value, or up to 160 acres with a value of no more than $2,500. An urban homestead is exempt up to ¼ acre without regard to value, or up to one acre with a value of no more than $2,500.
Option 2: A debtor may exempt real or personal property that the debtor or a dependent of the debtor uses as a residence under Ark. Code Ann. § 16-66-218(a)(1). Under this section, the homestead is exempt up to a value of $800 if the debtor is unmarried, or $1,250 if the debtor is married.
If the debtor chooses to use the federal Bankruptcy Code exemptions instead of the Arkansas exemptions, he or she can exempt a homestead up to a value of $23,675.
Vehicles, Wages, and Other Personal Property
Arkansas statutes exempt several kinds of personal property in varying amounts. For example, Ark. Code Ann. § 16-66-218(a)(2) exempts one motor vehicle up to a value of $1,200. Section 16-66-208 and 16-66-218(b)(6) exempt 60 days’ earned but unpaid wages, with a minimum of $25 per week.
However, the U.S. Court of Appeals for the 8th Circuit has held that these statutory exemptions violate Article 9, sections 1 and 2 of the Arkansas Constitution to the extent that they exempt more than those sections of the Constitution. Those constitutional provisions limit the exemptions for personal property — other than clothing — to $200 for an unmarried debtor who is not the head of a family and $500 for a debtor who is married or the head of a family.
Because of the 8th Circuit’s holding, the Arkansas exemptions for personal property are as follows: Clothing is exempt without regard to value. All other personal property is exempt up to the aggregate $200 or $500 limits described in the Arkansas Constitution.
Example: Craig, who is neither married nor head of a family, files for Chapter 7 bankruptcy in Arkansas and chooses to use the Arkansas state exemptions. He owns clothing worth $1,500; a car worth $1,000, but subject to an $800 loan; and $200 in cash. He may exempt all his clothing. However, he will only be able to exempt either the car (in which his equity is $200) or the cash, but not both.
In contrast, the Bankruptcy Code exempts the following personal property if a debtor chooses to use federal exemptions:
- One motor vehicle up to a value of $3,775.
- Household furnishings, household goods, clothing, appliances, books, animals, crops, and musical instruments, up to an individual value of $600 and an aggregate value of $12,675.
- Jewelry to an aggregate value of $1,600.
- Implements, professional books, and tools of the trade up to an aggregate value of $2,375.
Wages that are earned but unpaid are not exempt under the federal exemptions.
Pensions and Retirement Accounts
Ark. Code Ann. § 16-66-218(b)(16) exempts contributions to an IRA made more than one year prior to filing for bankruptcy, but only to the extent of $20,000. However, as with the other personal-property exemptions found in section 16-66-218, this exemption is subject to the aggregate $200 or $500 limit of the Arkansas Constitution.
Nevertheless, debtors who choose to use the Arkansas state exemptions can still exempt tax-exempt retirement accounts from liquidation under federal law, though IRAs and Roth IRAs are exempted only up to a value of $1,283,025. This is because of a special provision in the Bankruptcy Code that applies when state exemptions are chosen.
If the debtor chooses to use federal exemptions, tax-exempt retirement accounts are exempted, but IRAs and Roth IRAs are exempted only up to a value of $1,283,025.
Where do I file for bankruptcy in Arkansas?
Chapter 7 bankruptcy cases in Arkansas are filed with the Bankruptcy Court for the Eastern & Western Districts of Arkansas. The Eastern and Western Districts are divided into five (for the Eastern District) or six (Western) divisions, most of which have their own courthouse.
Location: U.S. Bankruptcy Courthouse
Street Address: 300 W. Second St.
Little Rock, AR 72201
Telephone: (501) 918-5500
Street Address: 100 E. Eighth St.
Pine Bluff, AR 71601
Telephone: (870) 536-1190
Street Address: 615 S. Main St.
Jonesboro, AR 72401
Telephone: (870) 972-4610
Street Address: 490 College St.
Batesville, AR 72501
Telephone: (870) 793-4330
Street Address: 812 Walnut St.
Helena, AR 72342
Telephone: (870) 338-6321
Fayetteville and Harrison divisions:
Location: Divisional Office, Federal Building
Street Address: 35 E. Mountain St., Room 316
Fayetteville, AR 72701
Telephone: (479) 582-9800
Street Address: 101 S. Jackson . Ave.
El Dorado, AR 71730
Telephone: (870) 862-1202
Location: Judge Isaac C. Parker Federal Building
Street Address: 30 S. Sixth St.
Ft. Smith, AR 72901
Telephone: (479) 783-6833
Street Address: 100 Reserve St.
Hot Springs, AR 71901
Telephone: (501) 623-6411
Street Address: 500 State Line Blvd.
Texarkana, AR 71854
Telephone: (870) 773-3381