What Assets Can You Lose in a Chapter 7 Bankruptcy in Birmingham, Alabama?

Many people assume that filing for bankruptcy is a financial death sentence that should be avoided at all costs. They may even believe that if you file for bankruptcy, you will lose everything you own in addition to your future prospects.

However, that perception couldn’t be farther from the truth. Bankruptcy is not a shameful, life-ruining disaster. Rather, it’s a financial tool that is designed to be used by people who have accumulated an unmanageable amount of debt and need a financial fresh start. Moreover, while it is possible to lose certain higher-value assets in a bankruptcy, many people are able to go through bankruptcy without losing any assets at all.

Chapter 7 Bankruptcy, sometimes known as “straight bankruptcy”, is the most common type of bankruptcy. In order to qualify, your income must be less than the average income in your county and in the State of Alabama for a household of a similar size. For reference, in 2020, the median income in Alabama for a family of three was $68,554.

When you file for Chapter 7, all of your unsecured debts will be discharged, meaning you will no longer be responsible for paying them. Filing for Chapter 7 triggers an automatic stay, stopping all collections on those debts—including calls, letters, foreclosures, repossessions, and wage garnishment—until the bankruptcy case is resolved. Most types of debt are dischargeable through Chapter 7 Bankruptcy, including credit card debt, medical debt, and personal debt. Other types of debt cannot be discharged through Chapter 7, including student loans, mortgages, and alimony/child support payments.

In exchange for discharging all your unsecured debts, Chapter 7 Bankruptcy is designed to liquidate assets in order to pay off your creditors. However, most people who file Chapter 7 can declare all or nearly all of their assets “exempt” from being liquidated. This means that many filers can keep all or nearly all of their possessions.

Exemptions from Chapter 7 Bankruptcy in Alabama may include:

• Homes (in some cases): You can keep your home if you have no more than a certain amount of equity in it ($15,000 for a single filer and $30,000 if spouses file jointly). Equity is the value of your home above the outstanding debt of your mortgage/mortgages.
• Personal Property: Many types of personal property are exempted from liquidation, including electronics, jewelry, clothing, household goods, and tools of your trade.
• Cars: Though there is no specific exemption for cars, many Chapter 7 filers can keep their cars. If there is no equity in the car or if it is on loan/leased, the debtor can keep it so long as they continue making loan/lease payments. If there is some equity on the car, there is a “wild card” exemption of $7,500 per debtor that can be used to exempt anything the debtor chooses. Debtors often use the wildcard to exempt their car
• Pensions, Benefits, Awards, and Retirement: Certain categories of savings and benefit programs are exempt. These include:

1. 1. Unemployment compensation and worker’s compensation
   2. Public benefits (including SSI/SSDI, public assistance, death benefits, crime victim compensation, and others)
   3. Retirement accounts such as IRAs and 401(k)s, pensions, and retirement benefits, as well as prepaid college tuition savings accounts

Are you dealing with an unmanageable amount of debt? Are you considering Chapter 7 Bankruptcy in Birmingham, Alabama? Birmingham Bankruptcy Attorney John Clark is here to help. Call (205) 506-3354 for a Personalized Case Evaluation on your case today.