In the state of Alabama there are two forms of bankruptcy: Chapter 7 and Chapter 13. Each form has its own requirements to meet in order to file for the bankruptcy. The following are debts that are eligible for filing on a bankruptcy.
Items not allowed in bankruptcy filing
- Alimony/Child Support
- Back Taxes
- Student loans (some are allowed in Chapter 13)
- Purchases exceeding $550 purchased up to ninety days before filing.
- Fines/Penalties owed to government agencies
- Cash Advances/Pay Day loans exceeding $825
Chapter 7 Bankruptcy
Chapter 7 bankruptcies are filed either with assets or as a no asset bankruptcies. Chapter 7 bankruptcies with assets are basically a liquidation of all assets in order to use funds to pay off all allowed debts. The court appoints a trustee to take possession of an individual’s assets and sells them. They then use these funds to pay each debt off and to pay for administrative fees for the bankruptcy.
No asset Chapter 7 bankruptcy requires a means test which is completed to determine eligibility for Chapter 7. This test is used to determine if the individual is able to pay 25% of their nonpriority unsecured debt. The courts and/or the bankruptcy attorney subtracts survival expenses such as rent and/or mortgage payments and food expenses from the individual’s monthly income. Once this amount is discovered the attorney or court will determine if the individual is able to use the left over amount to pay 25% of their unsecured debt (i.e., credit cards). If so, they are not eligible for Chapter 7 but could attempt to file Chapter 13. If they cannot pay this 25% of their nonpriority unsecured debt they are eligible.
If the yearly income of the individual is more than $32,654 they are not eligible. However, if their yearly income is less than $32, 654 they are eligible. For married couples their income should be less than $41,853. With one child their income is allowed to be no more than $46,505, and with two children it should be less than $53,690.
Chapter 13 bankruptcy organizes debts so that the debtor has more time to pay off their debts. These debts are stretched over a period of five years.
In order to file for Chapter 13 bankruptcy the individual must have: (1) a stable income, (2) less than $1,010,650 secured debt, and (3) less than $336,900 unsecured debt.
When the attorney files they will file a projected payment plan for the next five years that covers all debts within the bankruptcy. Once approved you keep all of your assets and begin payments on this payment plan immediately. If the individual misses one payment the courts will discharge the bankruptcy and the individual will become responsible for all debts immediately.
How to File
The individual will provide the following to the court:
- List of creditors
- Amount of each debt and type
- How often the individual is paid and the amount
- List of all property owned
- Detailed list of living expenses
The cost to file for bankruptcy is $299. Applied administrative fees are $39 and $15 for the trustee. Once the bankruptcy is filed the individual/petitioner has an automatic stay which means their creditors cannot collect debts from them at that time. After twenty to forty days of the date filed a 341 meeting is scheduled where creditors and the court have the option to question the individual/petitioner under oath regarding the debts. The period in which creditors have to try to have your bankruptcy denied is sixty days following this meeting.
Properties exempt from Bankruptcies: Exempt properties are properties that are not sold to pay off debts in a bankruptcy. The following are the only properties that are exempt in the state of Alabama:
- Real Property that is valued at less than $5000.
- No more than $250 per month annuity
- No more than $250 per month disability proceeds
- Life Insurance
- Personal belongings: clothing, family pictures, books, and burial plots
- Equipment issued to individual by the military
- No more than $3000 in cash
Once all debts included within the bankruptcy are paid the courts will discharge the bankruptcy. All debts included in the bankruptcy will either show as paid on the individual’s credit report or is completely removed. The bankruptcy itself will remain on their credit report for a period of no less than ten years.