Exemptions help protect your property in bankruptcy, and understanding how they work and which ones apply to you can make the difference between keeping what you own and risking unnecessary loss.
Bankruptcy laws exist so you can rebuild your life; they’re not designed to leave you empty-handed. Yet many people hesitate to file because they’re unsure which assets are actually protected under Alabama law.
In this article, we’ll explain what bankruptcy exemptions mean, how Alabama’s exemption rules work, and what types of property are typically protected in Chapter 7 and Chapter 13 cases so you know what to expect.
If you’re facing overwhelming debt and want clear answers about safeguarding your home, vehicle, retirement accounts, or other assets, it’s important to get guidance tailored to your situation.
The Birmingham bankruptcy attorneys at Nomberg Law Firm can review your finances, explain your options, and help you move forward with confidence. Learn more by scheduling a free consultation.
What do exemptions mean in bankruptcy?
Exemptions are laws that the bankruptcy courts follow to determine what assets may be available to pay your creditors. The exemptions you can use in your bankruptcy case vary depending on where you live and where you have lived for the past 3 years.
What are the bankruptcy exemptions in Alabama?
Alabama is an opt-out state, which means it does not use the federal exemptions. The state exemptions allow each individual to claim a homestead exemption on their residence up to $15,500.00 and up to $7,750.00 of personal property.
So, a married couple filing for bankruptcy who jointly own their home can claim as much as $31,000.00 of their equity exempt and as much as $15,500.00 of personal property, like cars, furniture, and money in the bank.
For most people seeking to file bankruptcy, those exemptions are more than enough to protect everything they own. The whole concept behind filing for bankruptcy is to give someone a fresh start. If they took everything you have, it would defeat the purpose of filing for bankruptcy.
So, what assets qualify for the exemption?
In most cases, you can keep property over and above the value of your exemptions, but you need to have an accurate inventory of your property and discuss how this works with a bankruptcy lawyer before your case is filed.
Various forms of individual retirement accounts and life insurance, for the most part, are 100% exempt from garnishment or levy from creditors, so they are usually100% exempt from bankruptcy. However, other retirement products, such as an annuity, may not be fully exempt.
Will Declaring Bankruptcy Stop Wage Garnishment in Alabama?
Facing wage garnishment in Alabama? Learn about your rights, how much creditors can take, and how an automatic stay might stop deductions fast.
What is an annuity in simple terms?
An annuity is a contract between you and your insurance company in which you make a lump sum payment and then receive regular disbursements from the insurance company over time. Under Alabama law, you can only exempt up to $250.00 per month.
So, if you have the right to withdraw the money from the insurance company, then everything over the $250.00 is subject to being garnished by your creditors. If you are only entitled to $250.00 per month or less and nothing more, then the funds should be exempt in bankruptcy.
Again, it is very important that you speak with a local Alabama bankruptcy attorney to review your assets and help you understand what is protected and what is not protected should you decide to file for bankruptcy.
What are the different types of bankruptcy in Alabama?
The 2 main types of personal bankruptcy in Alabama are Chapter 7 and Chapter 13. Knowing what is protected during bankruptcy can help you decide whether you should consider filing Chapter 13 instead of Chapter 7.
Chapter 7 bankruptcy
In Chapter 7, your assets are reviewed by a Chapter 7 trustee to determine what is exempt and what can be sold to pay your creditors. If you have a property with too much equity and you are concerned about losing it, you may have to consider other alternatives to bankruptcy or possibly file Chapter 13.
Chapter 13 bankruptcy
In Chapter 13, you propose a plan to repay your creditors over time, usually anywhere from 36 to 60 months. How much you must pay your creditors depends on your disposable income, but it also depends on the value of your non-exempt assets.
Creditors must receive as much as they would receive in a Chapter 7. This is also known as the “best interest of creditors” test.
So, if you have a property that is not exempt and subject to being sold by a Chapter 7 trustee, you must propose a plan that pays your creditors an amount that is at least equal to the value of this property. If you can claim the property as exempt, then that property will not be included in your plan payment calculation.
Whether you are considering filing Chapter 7 or need a Chapter 13 instead, please talk with an experienced bankruptcy lawyer before you file.
Where can I find an experienced bankruptcy lawyer in Alabama near me?
If you are struggling to pay your debts and concerned about the future welfare of your family and the costs of filing for bankruptcy, it is important that you seek the advice of a bankruptcy lawyer to ensure that your assets are protected and the debts you seek to eliminate are dischargeable.
At Nomberg Law Firm, our Birmingham bankruptcy attorneys have been assisting consumers and business owners with bankruptcy matters for over 25 years.
If you are considering filing for bankruptcy, please consider contacting the Nomberg Law Firm today for a free consultation.