Overview of Alabama Bankruptcy Laws
Each state as well as the federal government has enacted exemption laws which shield property from the claims of creditors and the bankruptcy trustee, once bankruptcy protection has been sought. In this regard, the state of Alabama is no exception. The Alabama legislature has passed exemption laws that allow those filing for bankruptcy in the Yellowhammer state to claim some property as exempt, or off limits to the trustee and creditors.
Alabama Car Exemption
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.
The Equity in a Car is the Issue; Not the Value
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.
Alabama Homestead Exemption
Another law that Alabama bankruptcy filers will want to be aware of is the state homestead exemption. Compared with states like Texas that offer generous homestead protection, the Alabama Homestead exemption is rather meager at $5,000 for real estate smaller than 160 acres in size.Married couples filing jointly can double the exemption to protect $10,000 of equity in their domicile.
For a more complete discussion of Alabama’s bankruptcy exemptions, visit legalconsumer.com.