A Chapter 7 bankruptcy is governed by the U.S. Bankruptcy Code, but Alabama local bankruptcy rules and state law apply as well. State law sets forth what bankruptcy exemptions may be available to you. Local bankruptcy court rules and rules of the local bankruptcy administrator govern document filing requirements and regulate the actual bankruptcy proceedings. Eligibility to file for a Chapter 7 is determined by Alabama's median income, or a means test also based on Alabama-specific financial criteria.
Chapter 7 Overview
Filing a Chapter 7 bankruptcy results in your assets being sold, with the money used to pay your creditors. The automatic stay issued when you filed bankruptcy prohibits creditors from taking collection action against you. To file a Chapter 7 bankruptcy, your income must be below the Alabama state median income. If it is not, you may still qualify for a Chapter 7 bankruptcy if you meet the means test. The means test takes six months of your average pre-petition income and subtracts your monthly expenses from it; the difference is your disposable income. Your disposable income must fall below the disposable income limits of the bankruptcy code to qualify for Chapter 7 bankruptcy.
Where To File an Alabama Bankruptcy
Alabama has three federal judicial districts, all of which have a bankruptcy court. The Bankruptcy Court for the Middle District of Alabama is located in Montgomery. The Bankruptcy Court for the Northern District is located in Anniston, Birmingham, Decatur and Tuscaloosa. The Southern District bankruptcy court is located in Mobile. Each court has their own local bankruptcy rules which must be followed. You can find these local rules on their respective websites as well as a list of counties each court serves.
Bankruptcy Administration and Liquidation
The U.S. Bankruptcy Administrator is responsible for overseeing the bankruptcy process and making sure your rights are protected during asset liquidation. Certain assets are exempt from being sold to pay your creditors. You may keep $5,000 of your home equity and all disability payments. Pensions for judges, law enforcement and teachers are exempt along with personal property, like books and burial plots, and public benefits. Seventy-five percent of earned, but unpaid, wages is also exempt. In addition, Alabama has a "wild card" exemption that applies to $3,000 of personal property.
Effect of the Discharge
When you receive your Chapter 7 discharge, you will owe nothing further to your creditors. Not included in the discharge are debts like student loans, child support and back taxes. The discharge order acts as an injunction, prohibiting creditors from trying to collect any debt from you. After you receive your discharge, you may not file another Chapter 7 bankruptcy for eight years. If a former creditor attempts to collect a discharged debt, they could be sanctioned and possibly forced to pay a fine to the court or damages to you.