On the ballot in November was Proposition 209 titled the Healthcare Debt
Interest Rate Limit and Debt Collection Exemptions Initiative. It passed
with overwhelming support. However, as with many things, the title did
not fully explain the propositions’ meaning and impact. A portion of Prop
209 does affect exclusively medical debt, but much of the impact of
proposition is on all debt.
Basic Provisions of Prop 209:
1. Garnishment of Earnings. Allowable garnishment amount
decreased from 25% (or 15% in the case of hardship) of disposable
earnings to 10% of disposable earnings or 60 times the highest
applicable minimum wage.
2. Interest rate for medical debt capped at 3%*
3. Home stead exemption increased from $150,000 to $400,000**
The proposition was legally challenged immediately upon passing. The
Arizona courts initially put a stay on the Proposition meaning it would not
go into effect, but the stay has been lifted and as of January 1, 2023 Prop
209 is in effect. The Proposition will be making its way through the court
system to determine its Constitutionality for quite some time; while this
process is underway Prop 209 is in effect.
What does it mean? The far reaching impact of prop 209 will ultimately
likely lead to less lending, increased interest rates and the inability of
creditors to collect on debts, including judgments of all kinds. Viable wage
garnishments will decrease and take longer to complete collection of a
judgment. The increased homestead exemption will make “foreclosure”
for a debt almost impossible in most cases. With fewer funds available for
bank garnishments those will be less successful.
For property owners and landlords, this means it is much more difficult to
collect on unpaid rent and damages to the property. We anticipate we will
see more security deposits at the maximum amount (1 ½ times the
monthly rent) and more scrutiny in the screening process when it comes to
the financial strength of potential tenants.
*Capped at the lesser of 3% or the annual rate equal to the weekly average one-year
constant maturity treasury yield, as published by the Federal Reserve Board, for the
calendar week preceding the date when the consumer was first presented a bill.
**ARS §33-1101; also exemption on household items increased from $6,000 to $15,000 ARS
§33-1123 and motor vehicle exemption increased from $6,00 to $15,000 ARS§33-1125.