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Bankruptcy: Alabama

The goal of bankruptcy in Alabama is two-fold: to offer honest debtors the opportunity to be relieved of crippling debt and to repay creditors to the extent that the debtor’s property or earnings permit.  Statistics reveal 33,727 bankruptcies were filed in Alabama in 2010, ranking Alabama 4th in the nation for the number of bankruptcy filings per capita.  43% of Alabama bankruptcy petitions in 2010 filed for Chapter 7 bankruptcy.

Filing Bankruptcy in Alabama

Bankruptcy in Alabama is governed by federal law and all bankruptcy cases are initiated in US Bankruptcy Court.  Alabama’s US Bankruptcy Courts are located in Montgomery, Birmingham and Selma. Although federal courts have exclusive jurisdiction over bankruptcy proceedings, only Alabama’s State laws will be applied when determining what personal property the petitioner is permitted to keep in bankruptcy and what must be sold.

Chapter 7 Bankruptcy, Alabama

Chapter 7 bankruptcies in Alabama are the most common bankruptcy filing. Chapter 7 is preferable for petitioners who don’t have a significant amount of assets, such as investments and substantial equity in a home. This is because a Bankruptcy Trustee may liquidate personal property that isn’t protected by Alabama’s bankruptcy exemptions. Liquidation occurs when the Trustee converts personal assets to cash for distribution to creditors. Alabama’s Chapter 7 bankruptcy law allows petitioners to keep some essential property; the exempt assets are strictly off-limits to creditors looking for repayment.

The vast majority of Chapter 7 cases are “no-asset” cases where no property is taken.

Alabama Bankruptcy Exemptions

Alabama’s state laws designate specific property that debtors may keep in bankruptcy so they can move forward as productive members of society. That is, the law protects the petitioner from literally having to sell the shirt off their back to repay a creditor. These are called “property exemptions.” The state of Alabama has passed legislation barring debtors from choosing exemptions on the federal list.

Because exemption values change, it is important to consult an Alabama bankruptcy attorney or refer to codes and statues for up-to-date information. Alabama’s key exemptions include:

Alabama Homestead Exemption

  • $5,000 total: Real property or mobile home
  • Property cannot exceed 160 acres (a husband and wife may double this limit)

Alabama Personal Property Exemption

  • $3000 of any property
  • Books, clothing, pictures and portraits

Alabama Tools of Trade Exemption

  • Arms, uniforms, equipment that state military personnel are required to keep

Alabama Wage Exemption

  • 75% of weekly net earnings or 30 times the federal minimum hourly wage
  • 75% of earned but unpaid wages (low-income debtors may qualify for more)

Alabama Wild Card Exemption

  • $3,000 of any personal property, except wages (a husband and wife may double this limit)

Alabama Public Benefits Exemption

  • Workers’ compensation and unemployment compensation
  • Aid to blind, aged, disabled and other types of public assistance
  • Crime victims’ compensation
  • Southeast Asian War POWs’ benefits

Alabama Insurance Exemption

  • Annuity proceeds or avails to $250 per month
  • Disability proceeds or avails to an average of $250 per month
  • Mutual aid association benefits; Fraternal benefit society benefits
  • Life insurance proceeds and 100% of cash value; or avails if clause prohibits proceeds from paying beneficiary’s creditors

Alabama Pensions and Retirement Savings Exemption

  • IRAs and other retirement accounts

Chapter 13 Bankruptcy, Alabama

In 2010, 57% of debtors petitioned for protection under Chapter 13 bankruptcy laws in Alabama.  A court-appointed trustee will reorganize debts and develop a 3-5 year repayment plan using the debtor’s future earnings to pay off creditors.  Chapter 13 petitioners typically keep most or all of their property.

How to File Bankruptcy in Alabama

Property exemptions can have a big impact on your decision to file for bankruptcy. For example, if your major assets are exempt and your debts qualify for discharge, Chapter 7 may be the right choice for you. Every case is different, and an Alabama bankruptcy attorney can help you review your facts and decide which bankruptcy option is best.

Bankruptcy Attorney: Alabama

It is the responsibility of individuals and couples to be informed of their rights and obligations as debtors.  An Alabama bankruptcy attorney can navigate the federal laws and state exemptions on your behalf.  Given the complexity of most bankruptcy cases, the bankruptcy advice and professional guidance provided by an Alabama bankruptcy attorney is a worthwhile expense.