A bankruptcy exemption is simply the value of certain property that state or federal law says, a creditor can NOT touch, no matter what. The two (2) types of Bankruptcy Exemptions are Real Property and Personal Property Exemptions. Each state enacts its own exemption laws or a state can decide to have the federal exemption laws apply within its borders. Regardless, every state provides protection for a certain amount of real or personal property owned by its citizens against the claims of creditors.
Real Property (Homestead) Exemption
In Alabama, the Real Property exemption is also known as the Homestead exemption. The homestead exemption protects a specified amount of the value of the personal residence owned by an individual. Presently in Alabama, the homestead exemption is $15,000 for each individual who is an owner of the personal residence. Therefore, married couples who are both on the deed can exempt up to $30,000.
Personal Property Exemptions
The other type of exemption is the Personal Property exemption. Any property owned by a person that is not real estate constitutes personal property. The personal property exemption will protect property as varied as household goods and furnishings, automobiles, computers, jewelry, lawn mowers and lawn tools, personal tools, bank accounts or proceeds from a lawsuit for personal injury. Presently, the personal property exemption in Alabama is $7,500 per person. Therefore, married couples can exempt up to $15,000.
There are some categories of both real and personal property that are entitled to complete protection no matter what the total value may be. Worker’s compensation benefits and social security benefits including both monthly benefits and any lump sum awards are both protected. Likewise, IRS qualified retirement accounts, which includes 401Ks and IRAs from your employment are 100% exempt from your creditors. Other lesser known, but equally untouchable are Burial plots, a church pew, books, pictures and portraits, wearing apparel and tools of trade (tools used specifically in your business).
The State of Alabama increased the limits of the exemptions listed above (Personal Property – $7,500/$15,000) and (Real Property – $15,000/$30,000) on June 11, 2015. This was the first time they had been increased since 1982. Fortunately, a part of that same bill signed into law on June 11, 2015, was that the exemptions would be automatically adjusted by the State Treasurer every 3 years beginning July 1, 2017. This adjustment would reflect cumulative changes in the consumer price index for the 3 year period ending on the December 31 preceding the adjustment date. The new figures will go into effect the following April 1. So beginning April 1, 2018, the new Personal Property Exemption will increase to $7,750/$15,500 and Homestead Exemption will increase to $15,500/$31,000. These figures will then change again on April 1, 2021, April, 1, 2024, etc.
Exemptions, and the claiming thereof, can be an extremely important part of any bankruptcy filing and why it is a good idea to seek advice from a bankruptcy attorney who can insure you receive the benefit of all protection provided under the Bankruptcy Code. If you are considering a filing for bankruptcy relief and wish to consult with a qualified bankruptcy attorney about your options, please contact one of our locations nearest you in Alabama, Mississippi or Tennessee for a free, confidential consultation.