Can you keep your car and file bankruptcy in Alabama?

Unlike most states, Alabama state law does not have an automobile exemption. Alabama is also an “opt-out” state, meaning federal exemptions are not available. Why is this important? It could mean that your car will be sold or you will have to pay the bankruptcy trustee the non-exempt value of the car if you file for chapter 7 bankruptcy in Alabama. Through a wildcard exemption, Alabama law allows debtors to protect $3,000 of personal property including cars. Married couples filing jointly can double the exemption to protect up to $6,000 of personal property. The problem is that the $3,000 personal property exemption applies to all of your stuff. If you own $15,000 of personal property including cars, it will be necessary to pay the trustee $12,000 in order to avoid the property being sold.

It is important to understand that, for exemption purposes, we are not concerned with a car’s value but only with the equity you have in the car. You can protect a car worth $25,000 if it is encumbered with a loan of $22,000. In this scenario, Alabama’s wild card exemption would allow you to protect the $3,000 of equity in your car and keep it through the chapter 7 process. If you are considering filing for bankruptcy in Alabama, consult an attorney.

SEE ALSO: Will I Lose My Home If I File Bankruptcy In Alabama?