The federal law plays a major role in bankruptcy cases.  However, there are state specific laws governing some areas of Bankruptcy.  This article briefly discusses some Alabama specific laws, for example, the bankruptcy filing procedure and the various property exemptions available in Alabama.

Filing Bankruptcy

An Alabama resident who wishes to file for bankruptcy must attend credit counseling before filing for bankruptcy.  The debtor is also required to do initial paper works and file the bankruptcy petition in the correct Alabama Bankruptcy Court.

Credit Counseling

Pursuant to the Bankruptcy Act of 2005, all individual debtors who file for bankruptcy on or after October 17, 2005, are required to undergo credit counseling.  Credit counseling is a mandatory step to qualify for Chapter 7 or Chapter 13 bankruptcy in Alabama.  The counseling must be received from an agency approved by the United States Trustee’s Office within a period of six months before filing for bankruptcy.

Means Test

As per the provisions of the 2005 Bankruptcy Act, the debtor’s income and expenses will be analyzed to determine if s/he would qualify for a Chapter 7 or Chapter 13 bankruptcy.  To apply the means test, the courts will look at the debtor’s average income for a period of six months prior to filing a bankruptcy petition.  Therefore, you must compare your income with the median income for a household of your size in Alabama.  If your average income is below the median income, then you may choose Chapter 7.  On the other hand, if it is above the median, the rest of the means test will be applied to know if you can go for Chapter 7 or if you must file Chapter 13.

Keep in mind that the median income keeps changing periodically. You can refer to the U.S. Trustee website to get the recent figures.

Gathering Paperwork and Completing Forms

Before you file a bankruptcy petition, you have to fill in and complete a number of forms and schedules containing detailed information about your finances.  Therefore, it is a good idea to track down and itemize your current sources of income; major financial transactions for the previous two years; monthly living expenses; secured and unsecured debts; and all assets and you have.  Your tax returns for the last two years, deeds to any real estate you own, your car papers, and the documents for any loans you may have will also be needed.

The official bankruptcy forms will be available online, on your district bankruptcy court website.  Some judicial districts require debtors to complete additional local forms.  You will get more specific information on additional forms from your bankruptcy filing clerk.

Where to File

There are three district bankruptcy courts in Alabama. They are in the Southern District; Northern District; and Middle District.  The court locations are as below:

You can choose to file a bankruptcy petition either in the district where you have been living for the greater part of the 180 day (six month) period before filing for bankruptcy, or in the district where you are domiciled.  Your district of domicile is the district where you maintain your home, even if you have been living in another place on a temporary basis.  For example, if you are on a armed forces base, you can choose to file for bankruptcy in the district in which you are domiciled.

Alabama Property Exemptions

The property exemptions help the debtors to know what property they can keep when they go for a Chapter 7 Bankruptcy.  And the amount they have to repay in case of Chapter 13 Bankruptcy. Alabama has its own list of property exemptions and the state law governs property exemptions in Alabama.   Alabama law does not allow federal bankruptcy code exemptions.  However, the citizens can use the federal non-bankruptcy exemptions in addition to the state law exemptions. Social security benefits, civil service benefits, and veteran’s benefits are some examples of the non-bankruptcy exemptions that are available.  Non-bankruptcy exemptions are provisions found under the U.S. law that are not part of the bankruptcy code.

There are different exemption categories.  Any property that falls under the exemption categories gets protected from your creditors.  You can keep the exempted property after you file bankruptcy. However, an exemption limit applies to any equity you have in the property.

Please note that the bankruptcy law allows married couples filing jointly to each claim a full set of exemptions.  So the exemption amount is increased if you are married and filing jointly.

Some bankruptcy exemptions that Alabama law allows are:

1.            Homestead Exemption

In Alabama a real property or a mobile home up to $5,000 in value is exempt.  For married couples filing jointly, the exemption amount is doubled.  However, the Alabama homestead exemption cannot exceed 160 acres.

2.            Wage Exemption

In Alabama 75 percent of the debtor’s earned but unpaid wages is exempt from liquidation in Alabama. The bankruptcy judge has the discretion to authorize more for low-income debtors.

3.            Personal Property Exemption

This exemption can be used to protect your personal property such as books, family pictures, and needed clothing.

4.            Wild Card Exemption

This allows debtors an exemption of $3,000 to keep any personal property they wish, except wages.

5. Other Exemptions

You also have certain exemptions for pensions, public benefits, insurance, and tools of trade.

Debtor Education

The debtor has to attend a debtor education course before receiving a bankruptcy discharge.  Please note that the debtor education must be taken from the U.S. Trustee Office approved agency.