For anyone thinking of filing personal bankruptcy in the "heart of Dixie", as Alabama is affectionately nicknamed by its residents, this information is for you.
In Alabama (as well as the other 49 states), the two types of bankruptcy commonly filed by individuals are Chapter 7 and Chapter 13. In a Chapter 7 bankruptcy proceeding, a court-appointed bankruptcy administrator takes possession of any nonexempt assets, sells them, and then uses the proceeds to pay creditors. The discharge is generally entered a few months after the petition is filed.
In a Chapter 13 bankruptcy proceeding, the individual filing bankruptcy proposes a plan to repay debts over a three to five year period. This plan must be approved by the Court, and plan payments are paid to the bankruptcy administrator, who then disburses the payments to creditors based on the terms of the approved plan. The discharge is not granted until the conclusion of the repayment plan.
If given a choice between Chapter 7 and Chapter 13, most people will pick Chapter 7 because it requires no repayment of debts and is over much quicker. However, bankruptcy laws enacted in 2005 place conditions on who can actually file a Chapter 7 bankruptcy petition, which brings us to...
Alabama Bankruptcy Fact #1
The bankruptcy laws enacted in 2005 impose a means test to determine if a person can file Chapter 7 bankruptcy. There are two ways to pass this means test.
The first way is to compare the household income of the person filing to the state median income. The annual income, calculated using the average gross income for the six-month period prior to filing, must be below the state median. Currently, the median income for a family of four in Alabama is $55,424.
If household income exceeds the median, a person can still file Chapter 7, based on the results of a means test calculation. Bankruptcy Form 22A is used for this calculation.
Additional information regarding the bankruptcy means test can be found on the U.S. Trustee Program's Website at http://www.usdoj.gov/ust.
Alabama Bankruptcy Fact #2
As stated earlier, the bankruptcy administrator in a Chapter 7 proceeding will take possession of nonexempt assets and liquidate them in order to pay creditors. The next obvious question - what exactly is exempt in Alabama?
Unfortunately, the answer is "not much". As of this writing, Alabama allows a $5,000 homestead exemption and a $3,000 personal property exemption. If the homestead is jointly owned by a husband and wife, each may separately claim the homestead exemption. There are other exemptions, and the laws may change at any time, so make sure you consult an attorney before you file bankruptcy, which brings us to...
Alabama Bankruptcy Fact #3
Many people who file bankruptcy without counsel do so because of the belief that they cannot afford an attorney. Truth is, bankruptcy is a complicated legal matter and you can't afford not to have an attorney. In addition, for those who really can't afford a lawyer, there are sources of free help. It's just a matter of tracking it down.
Start by calling your local bar association. They will be able to refer you to local attorneys and organizations that may be able to help you. If your local bar is unable to help, contact the Alabama Bar. Their contact information is available at http://www.alabar.org.
Dawn Hall is a freelance writer who worked as an assistant to a Chapter 7 bankruptcy trustee. She is currently developing a free online Chapter 7 bankruptcy resource guide. Visit her website for more information regarding Alabama bankruptcy.
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