Lewis Roca Blog

UPDATE: Prop. 209 became law on December 5, 2022, but was immediately challenged by the Arizona Creditors Bar Association and several other organizations. The plaintiffs alleged that Prop. 209’s Savings Clause was unconstitutionally vague and internally inconsistent. Plaintiffs argued that creditors would be subject to strict liability for failing to comply with Prop. 209, but yet the vagueness of the Savings Clause made it impossible to determine if a creditor was in or out of compliance.

The court initially partially granted the plaintiffs’ Temporary Restraining Order, and enjoined Prop. 209 only to the extent that it applied to any contracts entered into before December 5 or non-contract judgments where the underlying harm occurred before December 5. However, after hearing the evidence from both sides, Judge Blanchard determined on December 22^nd that the Savings Clause was not unconstitutionally vague and refused to enjoin the law from taking effect. Prop. 209 remains in effect.

The parties challenging Prop. 209 appealed Judge Blanchard’s ruling. The appeal is currently ongoing, with final disposition expected later this year.

On November 8^th, Arizona voters approved Proposition 209, which significantly modifies the rights of creditors. Although the pre-election publicity focused mostly on medical debt, Prop. 209 changes how all types of debt can be collected against individuals. The initiative took effect on December 5, 2022.

Before passage of Prop. 209, interest rates for medical debt were treated the same as other debts under A.R.S. § 44-1201. The statute set the maximum rate at 10% per year, but provided that any other interest rate could be agreed to.

Effective December 5, 2022, the interest rate for medical debt will be capped at 3% per year, or the weekly average one-year constant maturity treasury yield—whichever is less. Importantly, the maximum allowable interest rates for other types of debt will not change.

Prop. 209 also significantly modifies Arizona’s property exemptions. Property exemptions are set by statute and protect certain types of property, up to certain dollar amounts, from unsecured creditors’ collection efforts. The property exemptions are also used in bankruptcy cases to protect certain assets (in certain amounts) from being used to pay creditors. Prop. 209 makes the following changes to Arizona’s property exemptions:

These exemption amounts will be adjusted annually to account for cost-of-living increases. On January 1 of each year beginning in 2024, each exemption amount will be recalculated by measuring the percentage increase of the consumer price index from the previous year.

Finally, Prop. 209 limits the amount of a person’s wages that can be subject to debt collection by any creditor. Under current law, up to 25% of a person’s disposable wages is subject to garnishment by creditors (or 30 times the federal minimum wage, whichever is less). In the case of an order for the support of a person (e.g., child support), half of the debtor’s disposable earnings may be garnished. After Prop. 209 takes effect, only 10% of disposable wages will be subject to garnishment (or 60 times the highest applicable minimum wage, whichever is less). Prop. 209 does not affect garnishments pursuant to orders for the support of a person.

Prop. 209 makes changes to Arizona law that affect all creditors, not only holders of medical debt. It is important for creditors to understand these changes when executing a judgment or deciding whether to bring a lawsuit against an individual.

For more information about Prop. 209 or creditors’ rights, please contact Nick Bauman at nbauman@lewisroca.com or Andrew Jacobsohn at ajacobsohn@lewisroca.com.