All of these blog posts provide some general bankruptcy information and concern the filing for protection under the Bankruptcy Code. They include discussions of such things as the means test, filing for Chapter 7, Chapter 13, and other such bankruptcy issues. Bankruptcy Blog PostsIf you have any questions or want to know more about the bankruptcy process then take a look at the different blogs on here and if you don’t find and answer then give us a call.

We handle bankruptcy cases all across the State of Alabama and we hope these posts can provide some useful bankruptcy information. There is a blog post on bankruptcy exemptions that explains a little about what property you can protect from being liquidated in a Chapter 7 bankruptcy. There is a blog post on the different people involved in the bankruptcy process including the role of the Trustee in handling your case. One of the jobs of the Trustee includes an evaluation of your bankruptcy estate (which is all of the property that you own) to determine if there are any assets they can possible sell and distribute money to your creditors. 

Those are some of the many blog posts about the bankruptcy process. If you have any questions or want to say something about any of our posts then feel free to leave a comment or give us a call at (205) 201-1789.

Do I Qualify for Chapter 7?

There are several main factors to see if you qualify file for Chapter 7 bankruptcy and to determine if it is the best option for you, even if you do qualify. The first consideration is whether there are any past bankruptcy filings in your past.  The second is to see if you qualify by looking at the amount of your household income for the previous six months prior to filing.  Do I qualify for Chapter 7?The third consideration is whether you have any unprotected property that could be liquidated or otherwise taken from you in the Chapter 7 bankruptcy.

The first thing that determines your eligibility for filing Chapter 7 are any past bankruptcy filings.  You are allowed to file Chapter 7 once every eight years.  This means eight years from the filing date, not the discharge date. If the eight years has not passed, you will have to file a Chapter 13 to obtain debt relief because you will not be eligible for Chapter 7.

The second consideration when looking at Chapter 7 is whether you qualify to file based on your income or not. To qualify you must pass something called the Means Test.  Bankruptcy law requires that a person filing Chapter 7 submit all income information for the previous six months prior to filing in order to see if they pass this test.  The Means Test can be a very long and complicated calculation looking at the last six months of your household income. 

The first step of the Means Test is to see if your annual household income is higher than the average income of a household of your same size in Alabama. These average household incomes for each state can be found on IRS charts online and are updated periodically.  To determine your annualized household income, they look at the last six months prior to filing as a kind of snapshot. Qualifying for Chapter 7The average last six months gross household income is then annualized, and if this annual household income is lower than the number on the chart (average household income for your family size in Alabama), then you pass the Means Test and can file Chapter 7, no questions asked. 

However, if your annualized household income is above the average, then you must go through the second step for the means test.  This step takes your average monthly household income for the previous six months and allows deductions of certain expenses. This budget determines if you have any disposable income on your monthly budget or not.  The expenses allowed on this budget are listed in bankruptcy law, such as payroll taxes, insurance, and secured debt payments. You also get amounts for food, clothing, and other such household expenses from charts for a family of your size in Alabama (more IRS charts). If you have too much disposable income after deducting all of the expenses on this test, then you fail the Means Test and cannot file Chapter 7.

The third main consideration is property. When you file a Chapter 7 bankruptcy, something called a bankruptcy estate is opened up and everything you own is part of this estate. An attorney called a Trustee is appointed to your case to administer your estate. If you have unprotected equity in your home or car then the Trustee could hold an auction and sell the property and give the proceeds to your creditors. However, you can protect your property through things called bankruptcy exemptions. Qualifying for an Alabama Chapter 7 bankruptcyAs long as you don’t have a lot of equity in your home (or personal property like vehicles or vacant land) then you can usually protect such equity and the Trustee would not be able to touch your property.

If you don’t have vacant land, homes with lots of equity in them, or other such property then you can file what is called a no asset Chapter 7 bankruptcy, which are what most Chapter 7 bankruptcies actually are. If you are filing alone, you can protect a little over $15,000 in equity in your home. You can have a little more than this and probably be alright, depending on the Trustee where you file at, due to closing costs and other expenses the Trustee takes into consideration, but you wouldn’t want to file a Chapter 7 bankruptcy if you had a significant amount more than this. This amount doubles (to over $30,000) of equity you can protect if you are married and filing together. You can protect a little over $7500 in personal property, which doubles to a little over $15,000 if you are married and filing jointly. This property consideration is important and you should talk to a local bankruptcy lawyer to determine whether your property would be at risk in a Chapter 7 bankruptcy where you live.

If you are eligible to file Chapter 7, and don’t have any significant property that you cannot protect,  then you can file and get rid of all of your unsecured debt fairly quickly and easily. However it is important to take such property considerations into account, even if you do qualify based on your income, before deciding which type of bankruptcy to file or whether to file at all.

New Alabama Bankruptcy Exemptions

New Alabama Bankruptcy Exemptions

On June 11, 2015 the State of Alabama increased their bankruptcy exemptions for the first time since 1982. Bankruptcy exemptions are used to protect a debtor’s property during a Chapter 7 bankruptcy. When a Chapter 7 bankruptcy is filed, it is possible that your unprotected property could be liquidated and the money received from the sale used to pay your unsecured creditors. However, you can usually protect all of your assets through these bankruptcy exemptions. For example, there are bankruptcy exemptions for your retirement accounts, wages, social security, and other property that have specific exemptions that can be used to protect all of these types of assets. However, concerning items of personal property (vehicles) or your home, there is only so much value that you can protect in Alabama. In the past, you could protect up to $5,000 of equity in your home ($10,000 if you filed jointly with your spouse) and $3,000 of equity in your personal property such as vehicles or boats ($6,000 if you filed jointly with your spouse). However, the new exemptions have raised these amounts to $15,000 of equity in your home ($30,000 if you filed jointly with your spouse) and $7500 of equity in personal property ($15,000 if you filed jointly with your spouse).Alabama Homestead Exemptions

There are both federal and state bankruptcy exemption laws. Depending on the state you are filing in, you may be able to use the federal exemptions or a state’s exemptions. Sometimes the federal exemptions can be higher than the state you reside in. However, if you reside in Alabama, you generally cannot take the federal exemptions and must take the state exemptions in most cases.

A typical scenario will show how this increase in bankruptcy exemptions can help a potential debtor. Let’s say that you have a vehicle with no lien against it (you owe no money on it and own it free and clear) that is valued at $8000. In the past, you could only protect $3000 of the value of this vehicle. If you had filed a Chapter 7 bankruptcy, and exempted $3000 of equity in the automobile, then the Trustee would likely have taken the vehicle and sold it for $7500, paid you $3000, and paid the creditors in your case the remaining $4500. Therefore, if you had consulted with a bankruptcy attorney they would likely have warned you of this, and you would not have filed a Chapter 7 bankruptcy if you wanted to keep your vehicle. Now, with the new $7500 personal property exemptions, you could file and protect all of the equity in your vehicle and have no fear of losing it in the Chapter 7 bankruptcy.

The homestead exemption in Alabama was also increased in order to help potential debtors. Let’s say you have a home that appraises for $150,000 and it has a mortgage on it for $105,000. In the past, if you had filed a Chapter 7 bankruptcy with your spouse then you could protect $10,000 of the equity in your home. This means that if the Trustee were to sell your home for $150,000, they would have to pay you the $10,000 that you protected, pay the mortgage company $105,000, and there would be closing costs and costs of sale (usually about 10% or so of the selling price) of about $15,000. This means that if the Trustee were to sell the house they would get $20,000 to distribute to your unsecured creditors after they sold the home, which means that you would not likely have been able to file a Chapter 7 bankruptcy and keep your home. However, now the homestead exemption for a married couple filing together is $30,000. Therefore, if the home in the above scenario was sold in your bankruptcy, then the Trustee would have to pay you $30,000, the cost of sale would be $15,000, the mortgage company would be paid the remaining $105,000, and there would be no money from the sale to pay your unsecured creditors. So you could now file a Chapter 7 bankruptcy in the above scenario without fear of the Trustee in this case selling your home.

I hope that this helps to explain why this increase in the Alabama bankruptcy exemptions is so important. It potentially allows more Alabama debtors access to the Chapter 7 bankruptcy courts by removing some of the threats of losing their homes, vehicles, or other items of personal property. If you are considering filing a bankruptcy in Alabama and have questions about these new exemption amounts, then give us a call today and our bankruptcy lawyers will be happy to speak with you.