When filing for a bankruptcy in Alabama, there are two basic forms. Debtors can choose to file a Chapter 7 bankruptcy if they cannot handle their bills and need a way out. With a Chapter 13 bankruptcy, debt is restructured so the individual can pay it off over a period of five years.
The Benefits of Each Form of Bankruptcy
For the majority of people, a Chapter 7 bankruptcy is the best form. It is faster than a Chapter 13 and can be completed in a matter of months. Chapter 7 bankruptcies will effectively wipe away all of the person's debts. Once the debts are gone, the debtor can begin to rebuild their credit over the course of the next few years.
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If the debtor wants to keep their assets, they can choose to do a Chapter 13 bankruptcy. With this option, the debtor gets to keep all of their property and goods. In exchange, the bankruptcy filer has to make payments over the next three to five years. Debt is restructured and a trustee is put in charge of making debt payments. The debtor just has to give a monthly amount to the trustee and the trustee will make payments to the various debts.
Most people will be better off with a Chapter 7. Unless the debtor has a temporary loss of income or short-term rise in expenses, they will find it difficult to make payments over a five year period.
Alabama Specific Rules
If the debtor chooses to file bankruptcy in Alabama, they will have a few specific exemptions and rules. Debtors are allowed to keep certain pieces of property provided they have enough equity built up and the loan payments are current. For real estate property, debtors can keep up to $5,000 of equity. The property cannot exceed 160 acres in size. If a husband and wife are filing for bankruptcy, the amount can double.
Bankruptcy claimants can receive annuity or disability proceeds of amounts less than $250 a month. Money that comes from life insurance policies can be kept if the beneficiary is the spouse or child of the debtor. Alabama state law also allows the debtor to keep any benefits from a mutual aid association.
Pensions and Public Aid
Within the state of Alabama, debtors are allowed to keep their pensions only if they are a public employee. Debtors must be former judges, teachers, state employees or law enforcement officers to retain their pension. In addition, the state of Alabama has ensured that blind, aged or disabled debtors can keep their public benefits. According to state law, any proceeds from unemployment compensation, worker's compensation or crime victim's compensations. Recipients of Southeast Asian War POW's benefits or coal miner's pneumoconiosis benefits are also allowed to keep any money given to them.
Personal Property Exemptions
When filing for a bankruptcy, the state law of Alabama allows debtors to keep certain items of personal property. Debtors are allowed to keep any of their books, family pictures and any clothing that is necessary. Church-going individuals are allowed to retain their family pew and burial plots.
Debtors who are still a part of the military are allowed to keep any equipment that is required for the job. They may retain their arms, uniforms and military equipment.
Any bankruptcy claimant who is working may keep a minimum of 75 percent of their unpaid wages. If the debtor has a low-income, the judge for their case may allow them to keep a higher portion of their wages. Alabama state law also has a wild card provision for debtors. The law allows any debtor to keep $3,000 worth of personal property. This property can include any items the debtor wants except for life insurance.
Filing for Bankruptcy
In the state of Alabama, debtors must take a means test to determine which type of bankruptcy will work best for them. According to the law, any debtor who has an income below the state median may file for Chapter 7 bankruptcy. Debtors who make more than the median must pass another series of tests if they wish to file a Chapter 7 bankruptcy.
Debtors who can pay at least $10,000 over five years will most likely have their Chapter 7 bankruptcy turned down. For individuals who can pay at least $6,000 over five years, a lawyer or the judge will calculate how much the debtor can pay. If they can afford to pay off at least 35 percent of the unsecured debt, a Chapter 7 bankruptcy claim will be declined. Unsecured debt includes various credit bills or medical expenses.
To get started with the bankruptcy process, debtors should contact a lawyer. An experienced attorney can help guide debtors through the confusing process of claiming bankruptcy. Debtors should gather all documents pertaining to their property, a list of debts, records of major transactions, income statements and tax returns for at least two years. If the debtor owns a house or car, they should also bring their car titles, house deed and documentation of their loans.
Once all of the paperwork is in order, an attorney will determine what items are exempt under Alabama state law. After the paperwork is turned in, an automatic stay is placed on all of the debtor's loans and property. From that moment onward, creditors cannot contact the debtor or start foreclosing on any property. Many people who are in foreclosure will often start the bankruptcy process as a means to avoid foreclosure for a period of time.
The Trustee
As the bankruptcy case continues, all of the debtor's property and debts will be put in the hands of a trustee. This trustee will manage any money or property and divide it among the debtor's creditors. If the claimant files Chapter 13 bankruptcy, the trustee will manage their monthly payments for the next five years.
Filing for bankruptcy in Alabama offers debtors a few benefits. Debtors can keep a portion of their unpaid wages and retain a great deal of their property. Before filing for bankruptcy in the state, debtors should always contact a qualified attorney. Only an experienced lawyer can help the debtor to figure out the various filing procedures and navigate the legalities of a bankruptcy case.
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