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Secured Assets: Debt Negotiation and Judgment Protection

One of your main objectives before trying to negotiate a loan modification is to make yourself judgment-proof.

John McKindles

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Before you to try to negotiate a debt resolution with a creditor, consider the following.

Review Your Asset/Income and Debt Scenario

In debt collection, the key to what you can do with your assets and income is whether any transfer or other act, that would impact a creditor’s access to your assets/income, makes you unable to pay your debts as they become due. If, with your current assets/income, you are already unable to pay your debts as they become due (i.e., you are insolvent), you actually have more flexibility and options available to address your debt.

Exempt Assets

Notwithstanding the above, you can usually take steps to convert non-exempt assets to exempt assets at any time. Exempt assets are essentially those items of value that cannot be accessed by a creditor, including a judgment creditor, without the express written consent of the debtor.

Each state generally has its own exemptions, which are generally greater and more encompassing than the federal exemptions. Arizona’s exemptions are generally found under Title 33 of the Arizona Revised Statutes. However, exemptions can also be found under Titles 9, 15, 20, 23, 38, 41 and 46. Some additional exemptions can be found in the federal statutes, such as for Social Security benefits, benefits for government employees, veterans’ benefits, etc.

For example, the Arizona homestead exemption generally insulates up to $150,000.00 equity in a debtor’s residence. Although these days there are fewer homes with any equity, it may be advisable to use some non-exempt assets (e.g., cash, personal property or securities) to apply toward creating a greater exempt equity in your residence.


Another strategy in advance of negotiating a debt resolution might be to borrow money (perhaps from a friend or relative) and secure that loan with a lien against a non-exempt asset or an exempt asset with excess equity. These steps are also called making yourself “judgment-proof” – an enviable position to be in when negotiating a debt resolution.

Sales of non-exempt assets can also make you a less attractive target for creditors and, if properly documented, can be done without violating the statutes against fraudulent transfers (A.R.S. §§ 44-1004 and 13-2205).

Contacting creditors

Now, with your asset protection maximized, you are ready for the next step: contacting your creditors.