What are the Alabama Bankruptcy Exemptions? - Upsolve (2024)

If you’ve been thinking about filing bankruptcy, you may be wondering if you’ll get to keep the things you own — like your car, computer, tools, household goods, or even your home. The good news is that Alabama bankruptcy laws lay out exemptions that protect your property from being sold as part of a bankruptcy case. So if you file bankruptcy, you don’t have to worry that all of your property will be taken away. In fact, the Bankruptcy Code was designed to make sure debtors get a fresh start without losing it all.

This article explains some of the most commonly used exemptions in the state of Alabama.

Why Alabama Bankruptcy Exemptions Are Important in Chapter 7 Bankruptcy

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

Who Can Use the Alabama Bankruptcy Exemptions?

To use the Alabama bankruptcy exemptions, you must be 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. For example, if you own a home, Alabama’s homestead exemption allows you to protect up to $15,000 of the value of your home. If you and your spouse own the home together, you can double that exemption and protect up to $30,000.

Does Alabama Allow Filers To Use Federal Bankruptcy Exemptions?

While the Bankruptcy Code is a federal law that governs bankruptcy cases across the U.S., states also have their laws governing certain aspects of bankruptcy. Exemptions are one example. There are both state and federal bankruptcy exemptions. Some states allow bankruptcy filers to choose which set of exemptions they’d like to use in their bankruptcy case. But filers in Alabama can only use the state 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, 2020. In addition to Alabama's state exemptions, filers can use thefederal nonbankruptcy exemptions to protect certain retirement accounts and disability benefits.

Alabama Bankruptcy Exemptions

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

Real Property Exemptions: The Alabama Homestead Exemption

Alabama’s homestead exemption can be used to protect the equity you have in your home. Depending on how much equity you have, the Alabama homestead exemption may allow you to keep your home in a Chapter 7 bankruptcy. The homestead exemption in Alabama can be used to protect real estate, like a home and the land it sits on, or a mobile home. The homestead exemption in Alabama protects up to $15,000 in equity for single filers or up to $30,000 if you’re married and own the home with your spouse. The property can't be larger than 160 acres.

When property can’t be fully exempt, the bankruptcy trustee can sell the property, pay you the exemption amount, and use the remaining funds to pay down yourunsecured creditors. If you have more equity in your home than the exemption protects, you may want to consider filing Chapter 13 bankruptcy instead of Chapter 7.

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 property or has no exemption limit in the state of Alabama:

• A burial place and a church pew or seat

• Clothing, books, and family portraits and pictures

• Tools of trade

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

Motor Vehicle & Wildcard Exemption

Many states have a motor vehicle exemption amount, but Alabama doesn’t. This doesn’t mean that you have to give up a car you own or have equity in if you file bankruptcy. If you want to keep your car, you can use thewildcard exemption. This exemption can be used to protect any personal property up to $7,750 except for earned wages and your salary.

If you own property, such as a car, that’s not covered by an exemption, you can use the wildcard exemption to cover it. For example, there’s 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 own, you can do so by using the wildcard exemption. Alternatively, you can add all or part of the wildcard exemption amount to another exemption if it’s not enough to cover your personal property.

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. Net income is the amount you take home after deductions.

Retirement Accounts

Under the federal nonbankruptcy 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, 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 are fully exempt.

• Disability proceeds are exempt up to $250/month.

• Annuity proceeds are exempt up to $250/month.

• Mutual aid association benefits are fully exempt.

• Fraternal benefit society benefits are fully exempt.

Is Chapter 7 Bankruptcy Right for You?

If you have a lot of credit card debt, medical bills, and other types of unsecured debt, Chapter 7 bankruptcy may be a good option. As this article explained, a lot of your personal and real property can be protected by exemptions in a Chapter 7 bankruptcy filing. But each person’s situation is unique. If you have a lot of secured debt — like a mortgage and/or car loan — and you’re behind on your secured debt payments, or your assets aren’t covered by Alabama’s exemptions, you may want to look into filing a Chapter 13 bankruptcy instead.

If you aren’t sure which type of bankruptcy is right for you, you can schedule a free consultation with anAlabama bankruptcy attorney to get tailored legal advice and learn more about the bankruptcy process. A bankruptcy lawyer will be able to tell you if a Chapter 7 bankruptcy or a Chapter 13 bankruptcy is best for your financial situation. If you can’t afford to hire an attorney and you have a straightforward Chapter 7 case, you can useUpsolve’s free filing tool to get the debt relief you need.