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What are the Alabama Bankruptcy Exemptions?

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In a Nutshell

When you file for bankruptcy you will learn that there are two sets of exemptions that states can use. The federal bankruptcy exemptions and state exemptions. Congress enacted the federal exemptions and gave states the option to allow their residents to use those exemptions. Alabama only allows filers to use the Alabama exemptions, not the federal exemptions. So, if you plan to file bankruptcy in Alabama, you will only be allowed to use the Alabama exemptions. Alabama exemptions can be found in the Alabama Code. Alabama exemption amounts are adjusted for inflation every three years. The next change will go into effect on July 1, 2020. In addition to Alabama's state exemptions, filers are able to use the federal nonbankruptcy exemptions to protect certain retirement accounts and disability benefits.

Written by Attorney Karra Kingston.  
Updated August 7, 2020


What Are Alabama Bankruptcy Exemptions and Why Are They Important in Chapter 7 Bankruptcy?

When you file an Alabama bankruptcy, you can choose to file a Chapter 7 bankruptcy or a Chapter 13 bankruptcy depending on your financial circumstances. In a Chapter 7 bankruptcy, your debt is eliminated and you don’t have to pay your unsecured creditors. Fortunately, if you decide to file bankruptcy, you don’t have to worry that all of your property will be taken away. Alabama bankruptcy exemptions protect certain types of property up to a certain value. Most property that you need to maintain a basic standard of living will be protected. Alabama’s bankruptcy exemptions allow you to keep your clothes, personal property, and certain real property. If you are contemplating not filing bankruptcy because you are worried everything will be taken away, you should educate yourself on the importance of bankruptcy exemptions. Bankruptcy laws were created to help people get a fresh start. In order to help people start over the Bankruptcy Code allows individuals filing for bankruptcy to keep their essential personal property. 

Does Alabama Allow The Use Of Federal Bankruptcy Exemptions?

When you file for bankruptcy you will learn that there are two sets of exemptions that states can use. The federal bankruptcy exemptions and state exemptions. Congress enacted the federal exemptions and gave states the option to allow their residents to use those exemptions. Alabama only allows filers to use the Alabama exemptions, not the federal exemptions. So, if you plan to file bankruptcy in Alabama, you will only be allowed to use the Alabama exemptions. Alabama exemptions can be found in the Alabama Code. Alabama exemption amounts are adjusted for inflation every three years. The next change will go into effect on July 1, 2020. In addition to Alabama's state exemptions, filers are able to use the federal nonbankruptcy exemptions to protect certain retirement accounts and disability benefits.

To be protected under the Alabama bankruptcy exemptions, you must be an Alabama resident for at least two years before your bankruptcy case is filed. Congress implemented this rule to stop people from taking advantage of the system and moving to different states just to get more favorable exemptions. 

Married couples filing bankruptcy jointly can double Alabama’s exemptions if they both have an ownership interest in the property. For example, if you own a home Alabama’s homestead exemption allows you to protect up to $15,500 of the value of your home. If both, you and your spouse own the home together, you can double that exemption and protect up to $31,000. 

Alabama Bankruptcy Exemptions:

Real Property Exemptions: Alabama Homestead Exemptions

The Alabama homestead exemption allows filers to file bankruptcy and keep their home - up to a certain amount. As noted above if married couples own the property together this exemption can be doubled. Alabama’s homestead exemption is used to protect the equity in a home. This allows your property to be safeguarded from creditors. When property can’t be fully exempt, the bankruptcy trustee can sell the property to pay down your unsecured debt after paying you the amount of the exemption. The homestead exemption in Alabama can be used to protect real estate or a mobile home, up to $15,500. The property can't exceed 160 acres. 

Personal Property Exemptions: 

Below is a list of some of the types of exempt property that you can keep if you decide to file a Chapter 13 bankruptcy or Chapter 7 bankruptcy in Alabama: 

A burial place and a church pew or seat:

  • This can be fully exempt 

Clothing, books, family portraits and pictures:

  • This can be fully exempt.

Motor Vehicle Exemption:

  • There is no motor vehicle exemption in Alabama. This does not necessarily mean that you have to give up your car if you choose to file bankruptcy. If your car has equity, you can look into using the wildcard exemption. The wildcard exemption can be used to protect any personal property. 

Tools of Trade: 

  • There is no limit for individual filers to protect tools of trade

  • There is no limit for individual filers to protect arms, uniforms, and equipment required to be kept by state military personnel.

Wildcard Exemption:

  • You can exempt up to $7,750 for any personal property except for earned wages and your salary. The wildcard exemption can be used on any property that does not have an exemption or that does not have an exemption to cover all of it. For example, there is no exemption to protect household goods and furnishings in Alabama. So, if you want to exempt a dining room table or any other furniture you can do so by using the wildcard exemption. 

Other Alabama Exemptions:

Wages:

  • You can keep 75% of income or 30 times the federal minimum hourly wage or 75% of earned but unpaid wages. 

Retirement Accounts - 11 U.S.C § 522(b)

Retirement Accounts can be exempt up to their full value. Below are the types of retirement accounts that fall under such:

  • Tax-exempt retirement accounts:

  • 401(k)s, 403(b)s, profit-sharing, and money purchase plans, SEP and SIMPLE IRAs, IRAS, Roth IRAs, ERISA-IRAs, and qualified benefits 

  • Pensions: Nonprofit corporations' employees; public employees; other pensions and IRA payments needed for support.

  • Retirement and disability benefits for judges.

  • Retirement, pension, annuity benefits for teachers.

  • Qualified (spendthrift) trusts.

  • Retirement and disability benefits for law enforcement officers.

  • Retirement benefits and annuities for state employees.

Money Benefits:

Public Assistance:

The following can be exempt up to the full monetary value:

  • Crime victims' compensation.

  • Unemployment compensation.

  • Workers' compensation.

  • Southeast Asian War POW's benefits.

  • Aid to blind, aged, and disabled; other public assistance, including earned income tax credit.

Insurance: 

  • Life insurance proceeds are fully exempt 

  • Disability proceeds up to $250 per month.

  • Annuity proceeds up to $250 per month.

  • Mutual aid association benefits are fully exempt. 

  • Fraternal benefit society benefits are fully exempt. 

Filing Chapter 7 Bankruptcy 

When you are struggling with unsecured debt, Chapter 7 bankruptcy can be a good option for you. However, if most of your debt is secured or you have a lot of nonexempt assets, you may want to look into filing a Chapter 13 bankruptcy. Speaking with an Alabama bankruptcy attorney is a good way to learn more about the bankruptcy process and the exemption amounts that can be used. An Alabama lawyer will be able to tell you if a Chapter 7 bankruptcy or a Chapter 13 bankruptcy is best for your financial situation. Many bankruptcy lawyers give free consultations which will allow you to learn about the quality of their legal services and become more educated about the bankruptcy process and your financial situation.

If you don’t have the funds to hire an attorney, Upsolve can help you get the debt-relief you need. Upsolve has free bankruptcy tools to help you file for bankruptcy. The best part about using Upsolve is that all the tools are available for free! 



Written By:

Attorney Karra Kingston

LinkedIn

Ms. Kingston began her career as a bankruptcy attorney. She has appeared in front of many federal court judges and has helped numerous debtors obtain a fresh start. Ms. Kingston understands the complex federal rules for discharging debt. While working as a bankruptcy attorney, Ms... read more about Attorney Karra Kingston

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