What Are the Alabama Bankruptcy Exemptions?

Why Are Alabama Bankruptcy Exemptions Important in Chapter 7 Bankruptcy?

Alabama bankruptcy exemptions protect different types of property up to a certain value. Most items you own that you need to maintain a basic standard of living will be protected by exemptions. For example, Alabama’s bankruptcy exemptions may allow you to keep your clothes, other personal property like a car, and real property like your primary residence. 

Who Can Use the Alabama Bankruptcy Exemptions?

To use the Alabama bankruptcy exemptions, you must have been an Alabama resident for at least two years before filing your bankruptcy petition. Congress implemented this rule to stop people from taking advantage of the system by moving to a different state 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. Single and married filers can also take advantage of the federal non-bankruptcy exemptions, which help protect retirement accounts and certain money benefits.

Does Alabama Allow Filers To Use Federal Bankruptcy Exemptions?

No.

Though there is a set of federal bankruptcy exemptions, Alabama doesn’t permit its residents to use them in lieu of the state’s exemptions. 

Alabama’s exemptions can be found in the Alabama Code. Alabama exemption amounts are adjusted for inflation every three years. The last change went into effect on July 1, 2023. In addition to Alabama's state exemptions, filers can use the federal non-bankruptcy exemptions to protect certain retirement accounts and disability benefits.

What Are the Alabama Bankruptcy Exemptions?

Exemptions in the state of Alabama can generally be broken into three categories: real property, personal property, and intangible property/money benefits like income, wages, and public benefits.

Real Property Exemptions: The Alabama Homestead Exemption

Alabama’s homestead exemption is $18,800. This means you can protect up to that amount of the equity you have in your home. You can calculate your equity by subtracting what you still owe on your mortgage from your home’s current value. For example, if your home is worth $225,000 and you still owe $207,000 on it, you’d have $18,000 in equity and your home would be protected by the homestead exemption.

When property can’t be fully protected by an exemption, the bankruptcy trustee can sell the property, pay you the exemption amount, and use the remaining funds to pay down your unsecured creditors. If you have more equity in your home than the exemption protects, you may want to consider filing Chapter 13 bankruptcy instead or research other debt relief options.

Source: Ala. Code 6-10-2, 3, 4, 12, with recent updates noted by the Alabama State Treasury

Alabama’s Personal Property Exemptions 

Your home and land are called real property. Pretty much everything else you own is personal property. You can think of personal property as anything you own that’s moveable. 

Here’s a list of property that’s fully exempt in Alabama:

• A burial place and a church pew or seat

• Clothing, books, and family portraits and pictures

• Tools of the trade

• Arms, uniforms, and equipment required to be kept by state military personnel

Source: Ala. Code 6-10-5, 6-10-6, 31-2-78, 31-2-78

Wildcard Exemption

Alabama has a generous wildcard exemption of $9,400.

That said, Alabama is unlike many other states in that it doesn’t provide specific exemptions for common types of personal property like your car or household goods and furnishing. So you’ll need to use the wildcard exemption wisely to ensure your important personal property is protected.

You can use the wildcard exemption to protect any property that’s not otherwise protected by exemptions, or you can add the wildcard amount to an existing exemption to increase it. However, you can’t use it to protect real estate, wages, salary, or other compensation.

Source: Ala. Code 6-10-6; 6-10-126, with recent updates noted by the Alabama State Treasury

Alabama Exemptions for Income and Benefits

The final category of exemptions covers income, wages, public benefits, retirement accounts, and insurance. 

Wages

Under Alabama law, you can keep 75% of your unpaid weekly net income or 30 times the federal minimum wage, whichever is greater. Net income is the amount you take home after deductions.

Source: Ala. Code 6-10-7

Retirement Accounts

Under the federal non-bankruptcy exemption law, retirement accounts can be exempt up to their full value. This includes the following:

• 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, and annuity benefits for teachers

• Qualified (spendthrift) trusts

• Retirement and disability benefits for law enforcement officers

• Retirement benefits and annuities for state employees

Money Benefits

The following types of public assistance can be exempt up to the full monetary value:

• Crime victims' compensation

• Unemployment compensation

• Workers' compensation

• Southeast Asian War POW's benefits

• Aid to people who are blind, aged, and disabled

• Other public assistance, including an earned income tax credit

The following types of insurance benefits are exempt:

• Life insurance proceeds, fully exempt.

• Disability proceeds up to $250 per month

• Annuity proceeds up to $250 per month

• Mutual aid association benefits, fully exempt

• Fraternal benefit society benefits, fully exempt

Source: Ala. Code 6-10-8 and ​​25-5-86

Need Help Filing Chapter 7 Bankruptcy in Alabama?

It’s important to understand how exemptions work so you can ensure that when you file bankruptcy to get a fresh start financially, you don’t have to start over with nothing. But you don’t have to go through this process alone. If you have a simple Chapter 7 case, you may be eligible to use Upsolve’s free filing tool to help prepare your case. We’ve helped thousands of people discharge over $700 million in debt. Our services are 100% free and we have great reviews from our members!

If you don’t qualify for our tool, we can help you schedule a free consultation with an attorney near you to help with your case.