Chapter 7 Bankruptcy in Alabama: What You Need to Know
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Posted by: National Bankruptcy Forum
Aside from football, Alabama might best be known for its rich agricultural history, the birth of Booker T. Washington’s “Atlanta compromise” in the civil rights movement, and being a big employer for colleges and the military.
The Heart of Dixie grew its economy after World War II to diversify past farming, though per capita income in 2018 was about $27,000 annually.
Alabama also is home to a lot of bankruptcy filings. In 2016, Houston County in Alabama was the third-highest county for bankruptcy filings in the entire United States — after a county in Tennessee and another in Georgia — with a bankruptcy rate of 940 per 100,000 residents. That’s more than four times the nation’s median bankruptcy rate.
Things are rough with the economy right now. If you’re struggling with your finances, one of the biggest concerns when filing for bankruptcy in Alabama is how much of your property you might lose when you file. One way to understand how this works is to understand what is supposed to happen in a bankruptcy case.
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Understanding Chapter 7 Bankruptcy in Alabama
When you file for Chapter 7 bankruptcy, the idea is that all your possessions will be sold and the money will be used to pay some part of your debts to your creditors. However, there are things you are able to keep even though you file for bankruptcy. These are called exemptions. You usually can keep your clothing and household goods, your retirement benefits, your car if it is not too valuable, and many other assets.
The exemptions that apply to any case depend on the state you live in at the time you file your case. Each state usually has its own list of exemptions that citizens of that state are able to keep. This list is written into the law of that state.
There is another list, called the federal exemptions list, which is provided in the federal bankruptcy law itself. Each state can choose, through its own law, whether debtors in that state must only use the state list, or can instead choose the federal list. Sometimes the federal list is better, sometimes the state list is better. It depends on what the debtor owns and wants to keep.
See also: How Often Can You File Chapter 7 Bankruptcy in Alabama?
Alabama Bankruptcy Exemptions: Can I keep my house?
Alabama has decided that its citizens, when filing for bankruptcy, can only use the list provided for in Alabama’s laws along with a limited number of federal exemptions that are not in the “federal list.” One of the most important items on the Alabama list is the homestead exemption (Alabama Code 6-10-2), which is limited to $15,000 ($30,000 if a husband and wife file together). This means if there is more than $15,000 (or $30,000 in a joint filing) of equity in a house, it cannot be kept when filing for bankruptcy.
Equity is the value of the house minus the balance due on the mortgage or mortgages on the house. To qualify, the property must be your residence, and it can include a mobile home. The homestead is limited, though, to 160 acres. Finally, in order to use the homestead exemption in Alabama, you must file a declaration with your county before you file for bankruptcy.
More exemptions, for reference, can be found in The Code of Alabama 1975, but we’ll go over a few more of the bigger ones in detail below.
Alabama Bankruptcy Exemptions
The top 5 exemptions under Alabama Code.| Type of exemption | Alabama law |
|---|---|
| Homestead | $15,000 of equity in principal place of residence; $30,000 if filing jointly with spouse |
| Personal property | Clothing is exempt, but no exemption for furniture; can use $7,500 wild card exemption |
| Vehicle | None; only the $7,500 wild card exemption |
| Wages | 75% |
| Pension/retirement | Exempt per federal tax law |
Alabama Vehicle Exemption
There is no specific exemption for an automobile, but there is a “wild card” exemption of $7,500 per debtor for anything the debtor wants to use it for, and this exemption can be used for a car. Again, it is the “equity” in a car, the value minus the loan. For most cars that are financed, and for most leased cars, there is no “equity” in the car at all, and in such cases the debtor can keep the car so long as they continue to make the payments.
Wages and Personal Belongings
For wages owed to a debtor, 75 percent is exempt. However, this exemption has little meaning, as it would only apply if someone filed after the work had been done but before being paid. Thus, if your paycheck is received on a Friday, but is for the work done for the two weeks that ended on the Friday before, and the filing was in the middle of the two Fridays, the debtor would only keep 75 percent of the paycheck. (All future earnings are kept by the debtor.) The amount of non-exempt wages and salary would normally be so small that the bankruptcy Trustee would not bother taking it.
Personal clothing is exempt, but there is no specific exemption for furniture. However, the “wild card” exemption can be used. It also is usually the case that the used furniture in a debtor’s place of residence would have so little value if sold that it would not be bothered with.
See also: Can I Keep Livestock and File Bankruptcy?
Unemployment and Retirement Benefits
Unemployment compensation and workers’ compensation are both exempt, as are some other public benefits, such as aid to the blind, aged, and disabled; crime victim’s compensation; public assistance; and coal miners benefits for lung disease.
Retirement benefits that are qualified under federal tax law are exempt in Alabama. These would include usual pensions, IRAs, 401(k) plans, and any other retirement account exempt from taxation under federal law.
The federal exemptions that Alabama uses are not those in the U.S. Bankruptcy Code itself, but other exemptions throughout federal laws. These include exemptions for retirement benefits for federal employees, federal death and disability benefits, and certain other federal benefits.
Where are the Alabama bankruptcy courts located?
In Alabama, you’ll file for bankruptcy in one of three courts depending on where you live, which are then separated by division. All bankruptcy cases are handled by a United States Bankruptcy Court. Click any of the links below for more details on which county each court covers, plus operating hours, information on parking, and more.
Northern District of Alabama
Northern Division: 400 Well St., Decatur
Eastern Division: 1129 Noble St., Anniston
Southern Division: 1800 Fifth Avenue North, Birmingham
Western Division: 2005 University Blvd., Tuscaloosa
Middle District of Alabama
Northern Division: One Church St., Montgomery (main office; also the mailing address for all three divisions)
Eastern Division: 701 Avenue A, Opelika (hearings only)
Southern Division: 100 W. Troy St., Dothan (hearings only)
Southern District of Alabama
Mobile: 201 St. Louis St., Mobile (also mailing address for Selma division)
Selma: 102 Church St., Selma (hearings only)
Get Help from an Alabama Bankruptcy Attorney
As always, it is best to consult a qualified Alabama bankruptcy attorney to make sure you properly claim all the exemptions to which you are entitled. If you cannot afford an attorney, there may be organizations that can help you on this important part of the filing. It is especially important that you do your research, as the exemption amounts periodically change based on inflation and could be different than what you find on the internet.
Depending on your situation, you can often come through bankruptcy with a fresh start on your finances, and with most, if not all, your property intact.
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