Chapter 7 bankruptcy is the most common form of bankruptcy filed by individuals, both in Birmingham, Alabama and in the United States at large.
Though many people believe that filing for bankruptcy means losing everything you own, this is actually a misconception that couldn’t be further from the truth.
It’s easy to see where this misconception comes from. Chapter 7 bankruptcy does work by liquidating assets to pay creditors, after which most if not all of a person’s debt will be discharged (meaning they will no longer be responsible for those debts).
However, only certain types of assets and properties can be seized and liquidated by a Chapter 7 Trustee (the person in charge of administering a person’s bankruptcy estate).
The Bankruptcy Code protects certain types of assets and properties from liquidation, meaning the debtor can keep them. These are referred to as “exempt” assets and properties. All assets and properties not protected by these exemptions are considered non-exempt and can be liquidated.
Which property and assets are exempted in Alabama?
In an Alabama Chapter 7 bankruptcy, there are a number of categories of assets and properties that are protected from liquidation by exemption. If something is exempted, it means a Chapter 7 debtor gets to keep it.
Some of Alabama’s Chapter 7 exemptions include:
- Homestead Exemption: Any real property or mobile home used as a residence worth $16,450 or less, and containing 160 acres or less.
- Wildcard Exemption: $8,225 worth of any personal property, except compensation (i.e., wages or salary)
- Wages and Salary: Up to 75% of income or 30 times the federal minimum wage, OR 75% of earned but unpaid wages. Future wages cannot be garnished for debts discharged through Chapter 7 bankruptcy.
- Vehicles essential to your business or trade
- Tools essential to your business or trade
- Arms, uniforms, or equipment required to be kept by state military personnel
- Books, family portraits, and pictures
- Essential furniture, such as cooking utensils, stoves, tableware, tables, chairs, beds, and bedding
- Burial places
- Retirement accounts (for judges, teachers, state employees, and law enforcement officers)
- Various types of public compensation, including crime victims’ compensation, unemployment compensation, workers’ compensation, public assistance including earned income tax credit, Southeast Asian War POW benefits (up to $500)
- Various types of insurance proceeds, including life insurance proceeds, disability proceeds (up to $250/month), annuity proceeds (up to $250/month), and mutual aid association and fraternal society benefits.
- Property from business partnerships.
Which property and assets aren’t exempted in Alabama, and will I lose those properties and assets in a Chapter 7 bankruptcy?
Generally, if a property or asset isn’t included in the list above, it may not be exempted. Certain properties and assets are almost always non-exempt. These include:
- Second homes or other residential properties that are not your primary residence
- Certain vehicles (especially luxury vehicles not needed for your profession, in which you have equity)
- Valuable collections (such as stamps or coins)
- Expensive musical instruments (unless they are necessary for your profession)
- Valuable antiques or artwork
- Investments outside of retirement accounts
- Valuable jewelry and particularly expensive clothing
In some cases, even if something is not exempt, you can still figure out a way to keep it through a Chapter 7 bankruptcy by striking a deal with your creditor. This is most often done in the case of secure loans. For instance, if your house or car is not exempt, you may be able to arrange a payment plan with your mortgage or car loan holder that will allow you to keep your car or home, contingent on continued payment.
All of these guidelines and rules can be best navigated with the help of an experienced, knowledgeable Alabama Chapter 7 bankruptcy attorney, who will help you figure out the best possible outcome for your bankruptcy case.
Are you or a loved one considering filing for bankruptcy in Birmingham, Alabama? Birmingham bankruptcy attorney John Clark is ready to help. Call (205) 506-3354 for a free consultation on your case today.