- First, you need to determine if you qualify for Chapter 7 bankruptcy and how much it will cost you to file in Alabama.
- Next, it's worth exploring alternatives to Chapter 7 bankruptcy so you can weigh your options before making a decision.
- Lastly, you'll want to know all the specifics of Chapter 7 bankruptcy.
Chapter 7 bankruptcy is pretty common in the United States, and Alabama is no exception. If you want to get a quick estimate of your qualification and cost, you can use the Alabama Chapter 7 Calculator below.
1) How Chapter 7 Bankruptcy Works in Alabama
There are two main questions to keep in mind when looking into a Chapter 7 bankruptcy:
- How quickly will a Chapter 7 discharge the debt?
- How much is it going to cost?
When comparing different ways to get out of debt, Chapter 7 bankruptcy is usually the cheapest and fastest option compared to Chapter 13 bankruptcy, debt negotiation, debt management, and debt payoff planning.
How Fast Do You Get Relief When You File?
In Alabama, you can usually get a Chapter 7 bankruptcy discharge in as little as 120 days or four months.
When deciding to file a Chapter 7, you may hear the term "no-asset" in the Chapter 7 case. This means you may not have a house or any other valuable assets exceeding Alabama's bankruptcy exemptions. So, if you don't own any assets, this can be beneficial in Chapter 7, making it less complex. Remember that every case is unique, so you'll want to consult with an attorney if you are considering filing.
Let's take a closer look at the benefits and challenges of a Chapter 7 bankruptcy discharge in Alabama.
How Much Does It Cost To File?
Generally, a Chapter 7 bankruptcy costs anywhere between $500 and $3000 across the country.
However, within Alabama, the cost of Chapter 7 bankruptcy can vary depending on where you file. For example. In Montgomery, may cost $1,400 for a bankruptcy attorney fee, whereas in Huntsville, it may cost $1,500. Sometimes, you can reduce the cost of filing for bankruptcy through a filing fee waiver. If you're interested, more information on the Alabama filing fee waiver can be found on the US bankruptcy court website.
How Do I Qualify?
A Chapter 7 bankruptcy is designed for those who cannot repay some debts. However, before you can file, you must go through an income evaluation to see if you qualify for a Chapter 7 bankruptcy. This evaluation is called the means test.
Unsecured debts are debts that don't have any collateral attached to them. So, if you file a Chapter 7 bankruptcy, you can discharge medical bills, personal loans, particular old income tax debts, old utility bills, credit card debts, and most personal judgments. A Chapter 7 bankruptcy is like a fresh start, allowing you to get back on your feet.
What about secured debts?
If you're looking to wipe out secured debts, such as car loans and mortgages, Chapter 7 may be able to help. However, you'll have to give up the asset to your creditor and they will have to consider it as payment in full for what you owe.
Now, let's take a deeper look into the qualification for a Chapter 7 bankruptcy.
IMPORTANT: Chapter 7 Qualification via Alabama Means Test
The Bankruptcy Means Test calculates your average monthly and annual income. This test looks at your average monthly and annual income and compares it to the median income of other households in your state.
If your average annual income or median income is lower than the Alabama median income limit, you might qualify for a Chapter 7 bankruptcy. To get an idea of whether or not you qualify, you can use the free Alabama Chapter 7 Bankruptcy Means Test Calculator below.
What if My Income Exceeds The Chapter 7 Means Test?
If your income is higher than the average income in your state, you might need to take a look at part 2 of the means test or explore an alternative option. The Means Test isn't just a simple pass or fail, if you don't "pass" the first part, there's still a chance to "pass" the second part and qualify for Chapter 7 bankruptcy.
Chapter 7 Bankruptcy Alabama Income Limits
The Alabama median income figures for the Means Test are adjusted now and then, based on data from the IRS and Census Bureau. So, if you're filing for bankruptcy in Alabama on or after April 1, 2024, here's what you need to know.
- Any more than nine members, you'll add $9,000 for each additional family member.
Make sure to look at the figures on the US Trustees website. They will have the most up-to-date information for you when it comes to the Alabama median income figures for the Means Test. Stay informed and make sure you're on the right track.
Understand Alabama bankruptcy exemptions
It's important to understand the bankruptcy exemptions and how they can protect your property. These exemptions can protect the equity in your assets and ensure that certain items won't be sold off, whereas non-exempt property can be fair game.
However, it's important to note that in Chapter 13 cases, if there is non-exempt equity in the property, it can affect the payment plan in the bankruptcy.
When it comes to protecting assets, most people are concerned about their homes. In Alabama, there are specific homestead exemptions that determine how much equity in your home is protected based on your age and marital status. Let's break it down:
- Single and under or over 65 years old, you can protect up to $16,450 of equity in your home.
- Married and under or over 65 years old, the homestead exemption can protect around $32,900 of equity.
According to Alabama law (Ala. Code 6-10-2), the homestead exemption allows you to protect real property or a mobile home up to $15,500 after April 1, 2018. However, please note that the property cannot exceed 160 acres, and if you're married, you and your spouse can double the exemption.
It's crucial to review all the available Alabama bankruptcy exemptions. Additionally, there are federal bankruptcy exemptions outlined in the 11 U.S. Code §522. The National Consumer Law Center also provides a list of federal bankruptcy exemptions on its website. Keep in mind, that in Alabama, you are not allowed to use federal bankruptcy exemptions.
Chapter 7 Bankruptcy Pros and Cons
Like any other debt relief option, Chapter 7 bankruptcy has its upsides and downsides. There are many pros and cons to consider before filing for bankruptcy.
Pros
- Affordable debt relief solution
- You can receive a discharge in about 120 days.
- Fresh start that allows you to discharge the debt.
- You may be able to keep your home and belongings due to exemptions.
- It can put a stop to debt collection lawsuits. No more constant phone calls, threatening letters, or fear of legal action.
- No more deficiency. This is when you owe more on a loan than what your collateral is worth and the difference is called a deficiency, but a Chapter 7 can wipe it away.
- Provides relief for unaffordable unsecured debts.
Cons
- There are income requirements for qualification that you need to meet.
- You may potentially lose your home and other belongings if your assets exceed the exemption limit.
- It will have a negative credit report impact for 10 years.
- It may have a negative credit score impact.
- If you have non-dischargeable debt it may not be able to be wiped away. These are debts such as student loans and taxes that may not be able to be included.
- Difficult to prevent foreclosure
Now that we've covered the pros and cons, let's move on to discussing the alternatives to Chapter 7 bankruptcy in Alabama.
2) Alternatives to Chapter 7 Bankruptcy
Alternative options can be helpful to explore if you don't meet the requirements for Chapter 7, have some assets, or simply don't want to do a Chapter 7. Other options include Chapter 13 bankruptcy, debt settlement, debt management, consolidation loans, and debt payoff planning.
A debt consolidation loan combines all your debts into one payment. This allows you to take out a loan to pay off your various creditors, leaving you with just one monthly payment. It makes it easier to keep track of your payments but keep in mind that you are still paying off the full amount.
Each option has its benefits and challenges, so be sure to do your research and consult with a professional to find the best fit for your unique situation.
a) Chapter 13 Bankruptcy in Alabama
If you make more than the income limit for Chapter 7 bankruptcy, you can see if a Chapter 13 bankruptcy would be a better option for relief.
With a Chapter 13 Bankruptcy in Alabama, you can restructure your debts into a more manageable monthly plan. This means you can create a plan that allows you to better afford your house and car payments.
There are many benefits to a Chapter 13 bankruptcy. First off, it can put a stop to foreclosures, repossessions, and even wage garnishments. You can also catch up on mortgage payments, past-due car payments, and tax debt over three to five years through the bankruptcy plan. Chapter 13 bankruptcy might also allow you to reduce unpaid child support and alimony. However, it's important to note that you must continue making your regular domestic support payments to stay in Chapter 13. In a Chapter 13 plan, some people may be able to lower their car loan payments and potentially get rid of second mortgages, as long as they meet certain requirements.
Can you afford Chapter 13 bankruptcy?
A Chapter 13 repayment plan can be complex, so you may want to ask an attorney about it. There are the attorney fees as well as a repayment plan that looks at non-exempt equity and disposable income to determine how much, if any, of the debt you may pay back. Feel free to also check out the Chapter 13 calculator to get an estimate.
b) Debt Relief Program
If you're thinking about going the debt settlement route, there are a few things you should keep in mind. First off, consider the impact it might have on your credit score.
When you partner with a debt settlement firm, they are going to make you fall behind on the accounts you choose to include by about 6 months. They will then negotiate with your creditors on a lower overall amount you pay back over 2-4 years. This may hurt your credit score since you have to fall behind.
Ultimately, it is up to your creditors if they want to agree or deny negotiations, so there is quite a bit of risk involved. If they do agree, then you pay the lower amount through an escrow account, but they will expect you to keep up on all the payments. If the creditors do not agree, they may try to sue you. However, you can choose which accounts to include in the program. There also may be potential taxes on the forgiven debt, so be sure to consult with the firm to understand more about the process.
c) Debt Management
Debt management companies focus on negotiating lower interest rates and the program usually lasts for about 3 to 5 years. Debt management is generally a more expensive option compared to the others. Some creditors, like some personal loan lenders, may not want to work with a debt management company, plus there is a potential impact on your credit score.
Debt management can be a good option for folks who have a bunch of high-interest credit card debt so the firm will work to significantly lower those so you can pay on the principle.
If you're considering debt management in Alabama, it may be a suitable option if you have a significant amount of high-interest credit card debt. By reducing your interest rate from, let's say, 22-30% to a more manageable 10%, you can make your debt more affordable. This can be a beneficial solution for individuals in this particular situation.
d) Debt Payoff Planning
Debt payoff planning involves cutting down on expenses and putting any cash flow you have toward your debts to avoid interest charges. Keep in mind that this may not work for everyone, especially if you're dealing with a major financial setback, so it might not be feasible. Payoff planning means you are paying the full amount back, so it's helpful if you can afford your debt but want to pay it off more efficiently.
There is an app called the Savvy debt payoff planner that will help you prioritize your debts by combining efficient methods to create a plan to pay things off as quickly as possible. On average, it saves folks around $2,000 in interest.
3) Specific Chapter 7 Bankruptcy Information:
If you're wondering if Chapter 7 bankruptcy is the way to go, it's important to understand these key points before filing.
Chapter 7 bankruptcy is a legal process that allows individuals to wipe out their debts and start fresh. One of the major benefits of Chapter 7 bankruptcy is that it provides immediate relief from creditors coming after you.
However, not all debts can be wiped out through Chapter 7 bankruptcy. Certain types of debts, like student loans and child support payments, are generally not dischargeable. It may also have a significant impact on your credit score, which can potentially make it harder for you to get approved for loans or credit cards in the future. But, with some time and responsible financial behavior, you can rebuild your credit score and get back on track.
Credit Counseling and Debtor Education Courses
When you're going through the bankruptcy process, there are a couple of courses you need to take which are required if you want a discharge.
The first course you need to take is a credit counseling course. This has to be done before you file your bankruptcy case. It's designed to guide you and help you understand your financial situation better.
The second course is called a debtor education course. It's meant to educate you on financial management and give you the tools you need to make better financial decisions in the future and get back on your feet after the bankruptcy.
The United States Trustee's Office has approved certain companies in Alabama that offer these bankruptcy courses. You can find a list of these companies on the UST website and these courses can be completed online. There is a small fee involved, but they're designed to help you navigate through the bankruptcy process and improve your financial future.
Alabama Bankruptcy Court Locations
When filing for bankruptcy, you will have to attend the 341 meetings of creditors. A lot of these meetings have been happening over the phone or through Zoom. But, if you have a meeting that needs to happen in person, it's important to know where the courthouse is.
Here are the court locations for filing bankruptcy in Alabama, based on the bankruptcy district.
Middle District of Alabama, the courthouse is located in Montgomery.
Southern District of Alabama, the courthouse is located in Mobile.
Northern District
In the Northern District of Alabama, you'll find the US Bankruptcy Courthouse in Birmingham.
- Decatur, 400 Well Street, AL 35601.
Middle District
In the Middle District of Alabama, you'll find the US Bankruptcy Court in Montgomery, Alabama.
- One Church Street, Montgomery, AL 36104
Southern District of Alabama
In the Southern District of Alabama, you'll find the US Bankruptcy Courthouse in the George W. Andrews Federal Building.
- 701 Avenue A, Opelika, AL 36801.
Bankruptcy Trustees in Alabama
If you're looking for a list of Chapter 7 bankruptcy trustees in Alabama, here is a link to the official list!
The United States Trustee Program doesn't handle bankruptcy estates in Alabama at the moment. So, if you have any questions about cases in Alabama, you'll need to get in touch with the Administrative Office of the U.S. Courts. They are the ones who can help you out.
Here's their contact info:
Administrative Office of the U.S. Courts
Bankruptcy Judges Division
1 Columbia Circle, N.E., Suite 4-250, Washington, DC 20544
Phone: (202) 502-1900
Before you jump into filing a bankruptcy case, make sure you take a look at the Alabama local bankruptcy rules. They might have a few slight differences compared to the Federal Bankruptcy Rules.
Conclusion
Hopefully, you now have a better grasp of Chapter 7 bankruptcy in Alabama. If you're curious about whether you qualify and how much it might cost you, try out the Chapter 7 bankruptcy means test calculator below:
Most folks tend to work with a bankruptcy attorney when dealing with Chapter 7 or Chapter 13 bankruptcy, but there is also an option to file without an attorney. If you're interested in learning more about filing bankruptcy without an attorney, give this article a read.