With 72% voting in favor, Arizonans approved Proposition 209 decreasing the maximum lawful annual interest rate on “medical debt” from 10% to 3%, and increasing the amount of the homestead and other exemptions. These changes, which are effective immediately following certification of the vote and issuance of a proclamation by the governor (the governor does not have the authority to veto), only apply prospectively. “Medical debt” is defined as “a loan, indebtedness, or other obligation arising directly from the receipt of health care services or of medical products or devices.” Accordingly, in addition to judgments on medical debt, the 3% annual rate limit applies to loans or other financing for health care services or medical products or devices.
In addition to the annual interest rate cap, creditors should note significant increases in various exemptions. The following exemption amounts have been increased: (1) $400,000 (from $150,000) for the homestead exemption; (2) $15,000 (from $6,000) for household furniture, furnishing, goods, and appliances; (3) $15,000 (from $6,000) for the debtor’s equity in one motor vehicle ($25,000—from $12,000—if the debtor or the debtor’s dependent has a physical disability); and (4) $5,000 (from $300) for a single deposit account. These increased debt collection exemptions will prevent judgment creditors from collecting on their judgments to the extent judgment debtors claim the exemptions. The exemption amounts are also subject to annual cost of living adjustments starting in 2024.
Finally, the portion of the debtor’s weekly disposable earnings subject to garnishment (other than for support payments) was decreased to the lesser of 10% of disposable earnings or 60 times the highest applicable federal, state, or local minimum hourly wage. The amount subject to garnishment was previously the lesser of 25% of disposable earnings or 30 times the minimum wage. If a court determines the garnishment would cause an extreme economic hardship to the debtor or the debtor’s family, the court can reduce the maximum garnishable amount to 5% of disposable earnings. Trade associations already explained the potential negative impacts if Proposition 209 was approved. The Arizona Bankers Association stated, “Prop 209 would severely restrict the ability of Arizona consumers and businesses to access critically important lines of credit.” And the Arizona Chamber of Commerce & Industry explained, “When lenders can’t collect outstanding debts, they’ll pass their losses onto their other customers, which means higher interest rates for everyday Arizonans.”