Bankruptcy Laws In Alabama

If you have specific question about bankruptcy laws in Alabama it is advisable that you speak with a qualified Alabama bankruptcy attorney. In this article I will cover the general laws relating to an individual filing for bankruptcy in the state of Alabama.

There are two common types of bankruptcy that an individual can file. These are chapter 7 and chapter 13 bankruptcy.

Chapter 7 Bankruptcy in Alabama

Chapter 7 is often referred to as a straight or liquidation bankruptcy and it enables the debtor to eliminate all or most of their unsecured debts. Unsecured debts will include credit card debt, medical bills etc. Under chapter 7 a person can still keep certain assets that include their primary residence and car as long as they are able to pay off the monthly payments on the loans secured against them.

The Alabama bankruptcy laws state that to qualify for chapter 7 the person must past a means test. This law was passed in 2005 to limit the increasing amount of people who were filing chapter 7 to escape their debts.

The aim of the means test is to determine the person filing for bankruptcy does not have enough money to pay their unsecured creditors. This is accomplished by determining the families deposable income.  If the median income was below that of a similar sized family in Alabama this would qualify the person wishing to file a petition.

If your current monthly income is above the states median income limit it does not automatically mean you do not qualify. There are certain expenses and taxes that can be deducted from your income to bring it down to the required level. This will require more time and bankruptcy forms to fill out.

The bankruptcy code requires that a person wanting to file chapter 7 will need to attend approved credit counseling sessions in order to qualify.

It is also advisable to consider the expertise of a bankruptcy lawyer who is knowledgeable of the local laws in Alabama. This is especially the case if your income is borderline or just over the required income limit. If  you find that you are unable to qualify for bankruptcy chapter 7 you still have the option of filing for Chapter 13.

Filing Chapter 13 Bankruptcy In Alabama

Chapter 13 enables you to pay back the debts you owe and have in arrears over a period of time. The key concept of chapter 13 is the repayment plan that is agreed between you and your creditors. Within this plan you agree to pay back all or some of your debts. Chapter 13 is an option that you take if you want to protect your home from foreclosure.

For example, if you've fallen behind on your mortgage repayments you can pay these back under a chapter 13 payment plan until you are discharged. A chapter 13 bankruptcy case usually lasts between 3 to 5 years. So, in effect this buys you more time to catch up with the payments that you have fallen behind on.

However, it is important to point out this does not exclude you from honoring the rest of the payment terms of your mortgage. Although, chapter 13 can help save your house from being repossessed having to settle payments arrears and current payments is a huge financial commitment. Therefore, you will need to think long and hard about whether your home is worth keeping or not.

With careful budgeting this is still possible. It just means that you will have to make serious lifestyle changes by cutting down on expenses and increasing your income by taking on a part-time job to ensure you are able to meet both repayments.

Alabama's Bankruptcy Laws On Property Exemptions

There are certain properties that you can exempt. This means these can be protected and cannot be sold by the bankruptcy trustee to pay off your creditors. These properties can relate to your home, vehicles, wages, personal belongings etc.

The limits of property exemptions differ between states and before filing for  bankruptcy a person should seek the advice of a local bankruptcy lawyer who is well versed in the local exemptions rules of Alabama. A lawyer will be able to determine what are the debtor's nonexempt assets and what assets can be protected.

The following are the key exemptions in Alabama:

Homestead

The homestead exemption relates to residential properties and protects the equity that you have in the property. This can include a normal house or mobile home. For Alabama the amount of equity that you can protect is limited to $5000. This limit can be extended to $10,000 if the there is joint ownership with a spouse. There is also an acreage limitation in that the property should not exceed 160 acres.

Wages

Up to 75% of unpaid wages can be made exempt. This limit can be lowered or raised depending on the individuals financial circumstances and the discretion of the bankruptcy court

Personal Property

This can include items such as clothing, books, certain household furniture up to a limit of $3000.

The above list does not cover all exemptions. You can check the full list of  exemption property from the following district bankruptcy court websites:

• Northern District of Alabama
• Southern District of Alabama
  

Conclusion

To recap, filing for bankruptcy will enable individuals facing financial hardship to have legal protection under the bankruptcy code  of United States. This protection prevents some or all of the debtors creditors from collecting on their debts. It also means that some or all unsecured debts can be wiped out completely.

However, in return for this legal protection the United States Courts can take control of certain assets that can be sold to pay off creditors. Certain properties and assets can be kept as long as the debtor is able to make the payments.

Although, bankruptcy can offer debt relief and an opportunity to start a fresh it does not come without its consequences. Bankruptcy can have huge negative effect on your credit history. This means that your credit score can drop substantially and  your ability to borrow in the first 2 years after you have been discharged will be very difficult. Bankruptcy can remain on your credit report for up to 7 to 10 years.

For these reasons bankruptcy should only be considered as a last resort and should not be entered into lightly or perceived as an easy escape from your debts. There are alternatives to chapter 7 and 13 such as debt settlement and debt consolidation programs that will have a less an impact on your credit rating.