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Bankruptcy is a legal process that helps individuals and businesses overwhelmed by debt to eliminate or reorganize their obligations under the protection of the federal bankruptcy court. In Alabama, as across the United States, bankruptcy is primarily governed by federal law found in the U.S. Bankruptcy Code. However, certain exemptions and procedures are shaped by Alabama law. Filing for bankruptcy can provide relief from creditor harassment, wage garnishments, repossessions, and foreclosure. The most common types are Chapter 7 (liquidation) and Chapter 13 (reorganization) for individuals, each with specific eligibility requirements and consequences.
Navigating bankruptcy law can be complex, particularly when dealing with specific Alabama statutes in addition to federal rules. You might need a bankruptcy attorney if you are facing persistent collection calls, wage garnishment, foreclosure, or repossession of property. An attorney can help you determine if bankruptcy is the right solution, which chapter to file under, ensure you understand which debts can and cannot be discharged, prepare and file necessary paperwork, represent you at hearings, and protect your rights and property throughout the process. Without legal assistance, mistakes could lead to loss of property, case dismissal, or criminal liability for errors on your documents.
While the bankruptcy process is federally regulated, Alabama law affects which assets you can protect, known as "exemptions." Alabama exemptions are generally less generous than those in many other states. For instance, Alabama allows a relatively low amount to be protected in your home (homestead exemption), vehicles, and personal belongings. Alabama does not permit the use of federal exemptions in addition to state exemptions. Additionally, Alabama has specific rules related to wage garnishment limits, notification requirements for creditors, and certain types of property that can be protected during bankruptcy. It is crucial to review these local rules with a qualified attorney familiar with Alabama bankruptcy law.
Most individuals file either Chapter 7 or Chapter 13 bankruptcy. Chapter 7 involves liquidating non-exempt assets to pay creditors and discharging most remaining debts. Chapter 13 involves reorganizing debts into a three- to five-year payment plan. Each has different eligibility requirements and outcomes.
Alabama law sets specific limits on exempt property. You may protect a portion of equity in your home, basic personal items, and tools of your trade. Non-exempt assets may be sold to pay creditors in a Chapter 7 case. An attorney can review your specific property and help maximize your exemptions.
If you are current on your mortgage or car payments and your equity does not exceed Alabama's exemption limits, you may be able to keep these assets, particularly in a Chapter 13 case. If you are behind on payments, bankruptcy can sometimes help you get caught up, but outcomes vary by case.
A bankruptcy filing will remain on your credit report for seven to ten years. However, many people find that their credit begins to improve once their debts are managed. You may be able to obtain credit again sooner than expected by following sound financial practices.
Not all debts can be discharged in bankruptcy. For example, recent taxes, child support, alimony, certain student loans, court fines, and debts resulting from fraud usually cannot be eliminated. Speak with a lawyer to review which debts are dischargeable in your situation.
No, but your spouse may be affected if you have jointly owned property or debts. Each spouse can file separately or as part of a joint case. An attorney can advise on the best approach for your household.
There are waiting periods between bankruptcy filings, depending on the type previously filed and the type you wish to file. For example, after a Chapter 7 discharge, you generally must wait eight years before filing Chapter 7 again.
Filing bankruptcy generally triggers an "automatic stay," halting most collection actions, including foreclosure, repossession, and wage garnishment. However, this stay can be temporary, and certain actions may eventually proceed unless you are able to cure past-due payments or develop a payment plan.
There are court filing fees for bankruptcy, which vary by chapter, and you may also need to pay attorney fees. Some attorneys offer payment plans or flat-fee services, and fee waivers may be available based on income.
You should bring a list of your debts, recent bank statements, pay stubs, tax returns, information on your assets, and any legal documents relating to debt collections, foreclosure, or lawsuits. Being thorough helps your lawyer give you the best possible advice.
If you are considering bankruptcy or have questions, there are several resources available in Alabama:
If you believe bankruptcy may be the best solution for your financial situation, consider the following steps:
