Exemptions can be a tricky subject. An exemption is a law that states that all or part of an asset you own is protected from your creditors. Arizona has several very good exemptions, protecting you from having to give up everything just because you are seeking a bankruptcy discharge.

If you are filing for a bankruptcy discharge in Arizona, the first question is whether you can use the Arizona exemption law, or if different laws apply to you. Arizona is the proper venue to file if you have lived in the state for at least 91 of the last 180 days. If you have lived in Arizona for at least the last 2 years, then you will use Arizona exemption law. But a different state’s exemption laws will apply if you have not lived here for at least two years. The exemption laws that apply in that case are the one’s for the state you lived in two years before the date of filing.

But not everything is protected. Assuming Arizona exemptions apply, there is no exemption for tax refunds. An example will show how this works. Let’s say it is June of 2015. In April, you filed your 2014 return, and you got a refund already, and spent it on household bills. Because you no longer have the asset, there is nothing to exempt, and the Trustee has no claim on that refund. But you have already “earned” a right to a refund for 2015 taxes, which you will file in 2016. If you file bankruptcy at the end of June, you will have completed 1/2 of 2015. In this case, the Estate will have a claim to 1/2 of the refund for 2015. You may need to turn over 1/2 of the money you get.

But whether you will actually have to turn anything over depends on whether the total non-exempt assets will be enough for a Trustee to bother with administering. The first strategy to consider is minimizing the refund. One method is to declare yourself exempt, so that nothing is being withheld anymore. But you also need to prepare to pay taxes if you do not withhold enough. You can do this by setting up an account for direct deposit, and have the same amount deposited that used to be withdrawn for the taxes.

Another thing you will need to do is ensure that very little of what you have is not exempt. Obviously, you want to do that anyway; but the less there is for the bankruptcy Estate, the less reason there is for the Trustee to want to keep the estate open.

While there is more to this, you should consider a consultation; because a lot depends on specifics, and every case is different.