Are Annuities Protected from Creditors in Bankruptcy?

are annuities protected from creditorsWhen considering bankruptcy, there are many assets and concerns you must evaluate. The easiest way to get your many questions answered and to ensure your bankruptcy filing goes well is to hire an Arizona bankruptcy attorney. To help you better understand what might happen to your annuities during bankruptcy, we’ve outlined the key factors of bankruptcy and annuities.

An annuity can help someone save for a large event or purchase in the future, such as college or retirement. It’s a financial tool that enables you to put money in now and receive payments from it later. Over time, most annuities grow thanks to interest or safe investment options.

The dictionary defines an annuity as: “A form of insurance or investment entitling the investor to a series of annual sums.”

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Annuities as part of Arizona bankruptcy

In some bankruptcy situations, an annuity is the best and largest asset that an individual owns. For the most part, annuities are paid for long in advance with one of the most common terms being 30 years. That means that you’ve likely spent most of your lifetime paying into the annuity to prepare for the future.

Arizona law specifically calls out annuities and protects them in certain cases where they have not been used to hide money from creditors or avoid the debt that you owe. The law is covered in detail within A.R.S. § 33-1126(a)(7).

“A. The following property of a debtor is exempt from execution, attachment or sale on any process issued from any court:

  1. An annuity contract where for a continuous unexpired period of two years that contract has been owned by a debtor and has named as beneficiary the debtor, the debtor’s surviving spouse, child, parent, brother or sister, or any other dependent family member, except that, subject to the statute of limitations, the amount of any premium, payment or deposit with respect to that contract is recoverable or avoidable by a creditor pursuant to title 44, chapter 8, article 1 is not exempt.  The exemption provided by this paragraph does not apply to a claim for a payment of a debt of the annuitant or beneficiary that is secured by a pledge or assignment of the contract or its proceeds.  For the purposes of this paragraph, ‘dependent’ means a family member who is dependent on the debtor for not less than half support.”

What to avoid with your annuity in bankruptcy

You should not open a new annuity or try to hide money in it during the bankruptcy process. The law states that you can’t open a new annuity once you face financial hardships. It is not a tool to place your money in as a way of hiding it from the institutions that you owe money to.

In cases where you have a new annuity that you recently purchased, the best thing to do to protect it would be to wait the four years outlined in the law before filing for bankruptcy. This would enable you to still experience the protections that Arizona law outlines for annuities during bankruptcy.

Discussing an annuity with your Arizona bankruptcy attorney

The best way to ensure that your annuities and any other assets you have that you would like to keep stay yours during bankruptcy is to hire a good Arizona bankruptcy attorney. An attorney will work with you to find the best type of bankruptcy to file given your situation and your priorities. With this in mind, your attorney will then name your assets accordingly within your bankruptcy filing and ensure the timing is right on your filing to protect assets of importance to you wherever it is possible.