Do I have to give up everything I own if I file for bankruptcy?

On Behalf of | Dec 10, 2020 | Bankruptcy |

Many Alabamans are struggling with debt due to unprecedented financial challenges this year. Fortunately, there are legal options for debt relief, such as a Chapter 7 bankruptcy, that can offer much needed help.

What is Chapter 7 bankruptcy?

Chapter 7 bankruptcy is sometimes known as liquidation bankruptcy because it requires filers to sell some of their assets to pay creditors. However, contrary to popular misconception, they do not have to sell everything they own.

Alabama law allows Chapter 7 bankruptcy filers to keep their clothes, personal property and some real property, like a home for example, up to a certain value. These bankruptcy exemptions ensure that filers have a fresh start and are able to maintain a basic standard of living, without the concern that all of their property will be taken away.

To take advantage of the Alabama bankruptcy exemptions, a filer must have been an Alabama resident for at least two years before the bankruptcy is filed.

Although federal law also offers bankruptcy exemptions, filers in Alabama can only use the state exemptions. There are some federal non-bankruptcy exemptions, however, that filers may be able to use to protect retirement accounts and disability benefits.

How does Chapter 7 affect married borrowers?

Married borrowers who file for bankruptcy together can double the exemption if they both have an ownership interest in the real property involved.

Alabama offers a homestead exemption, which can be used to protect real estate or a mobile home up to $15,500 and property less than 160 acres. Married borrowers may qualify for an exemption up to $31,000.

An experienced attorney can offer advice about the benefits of debt relief and how it can be applied to each person’s circumstances. Chapter 7 bankruptcy isn’t for everyone, but for those who qualify it can be a useful option to regain financial health while also retaining what they own.