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Bankruptcy Law Blog

Monday, January 21, 2019

Holding On To What You’ve Got

Many people assume that filing for bankruptcy will mean losing everything they own. They envision the government holding a giant yard sale with all the proceeds going to creditors and nothing left over for the person who filed. 

Maybe that’s what bankruptcy looks like in old-timey movies, but modern-day bankruptcy is different. Most Alabamians who file for bankruptcy are able to hold on to their house, a car, and lots of personal belongings. 

How? 


Debtors filing under Chapter 13, which is becoming increasingly more popular, go into a court-supervised repayment plan for 3 to 5 years instead of selling off assets and using the proceeds to wipe out debts. The Chapter 13 process is designed to help debtors get caught back up on payments rather than giving a debtor a clean slate. 

Houses and cars can be saved from foreclosure or repossession by including them in a Chapter 13 plan. However, there is a risk that after going through bankruptcy, the debtor will again fall behind, so it is important to be realistic about the bankruptcy plan and what debt will remain after the court-supervised repayment period ends.

If getting into a repayment plan doesn’t seem realistic, or your debt is not tied to property you want to hold on to — like if it is credit card debt or healthcare debt — then Chapter 7 may be a better fit for you. 

Debtors filing under Chapter 7 sell most of their assets and use the proceeds to pay off creditors. Some of the debt that is left over is then forgiven, and what is left over is at least more manageable. However, even people that file for bankruptcy under Chapter 7 get to hold on to certain assets. The bankruptcy laws exempt some property from being turned over to creditors. 

What is exempted? 

Each state decides what property it will allow people who file for bankruptcy to exempt from being claimed by creditors. Here is a partial list of common Alabama exemptions:

  • Homestead Exemption — Property owners can exempt $15,500 of the value of a property used as the filer’s main residence. Married couples filing together who are both listed as owners of the property can double this exemption and preserve $31,000. A certain amount of land can also be exempted if it is the site of a movable permanent residence like a mobile home. 
  • Wildcard Exemption — Alabama filers get $7,750 to use to exempt whatever property they want of that value. Many people use this exemption to keep their car. 
    Personal Property — Filers are allowed to keep clothing, family portraits, pictures, and books for personal or family use. 
  • Tools of the Trade — If you have valuable tools that you use to earn a living, like construction equipment, you can usually exempt it. You can also hold on to work clothes. 
  • Retirement Accounts & Benefits — Most retirement accounts can be exempted. 

    If you have questions about what will happen to specific assets you own if you file for bankruptcy please schedule an appointment with an experienced bankruptcy attorney. This is a complex topic, and there is a lot of misinformation about it on the internet, so it is important to speak directly with someone who can help answer your specific questions. 

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Padgett and Robertson assist clients with Bankruptcy, Personal Bankruptcy, Consumer Bankruptcy, Chapter 7 Bankruptcy, Chapter 13 Bankruptcy and The New Bankruptcy Law in Mobile, Alabama and throughout southern Alabama. Alabama State Bar Association Regulations require the following: "No representation is made that the quality of the legal services to be performed is greater than the quality of legal services performed by other lawyers." 11 U.S.C. 528 of the U.S. Bankruptcy Code requires the following: "We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.”



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Alabama State Bar Association Regulations require the following: "No representation is made that the quality of the legal services to be performed is greater than the quality of legal services performed by other lawyers." 11 U.S.C. 528 of the U.S. Bankruptcy Code requires the following: "We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.”