What Can I Lose if I Declare Bankruptcy? 2

What Can I Lose if I Declare Bankruptcy?

The idea of filing for bankruptcy can be a frightening and daunting thought, but it’s important to keep it all in perspective. Not filing for bankruptcy can be far more harmful than taking control of your finances, even if it means you must file for bankruptcy.

While filing for bankruptcy may result in the loss of some of your assets, keep in mind that you won’t necessarily lose everything you own simply for filing bankruptcy.

Here are some of the things you may be able to keep after filing bankruptcy:

You’ll Still Have What You Need to Live and Work

Whatever property you own that is vital to your daily life and work, you’ll be able to retain after filing for bankruptcy, under what’s referred to as “bankruptcy exceptions.” However, any luxury assets you own may be lost if you file for Chapter 7 bankruptcy. If you file for Chapter 13 bankruptcy, you’ll have the opportunity to negotiate a repayment plan so that you can keep more of your assets.

Federal vs. State Bankruptcy Exemptions

Alabama does not allow federal bankruptcy exemptions but instead has its own set of state exemptions available to those who file. These are the Alabama state bankruptcy exemptions that are applicable most often:

Alabama Homestead Exemptions

This exemption allows you to keep your home after filing for bankruptcy—up to a particular amount. This exemption may be doubled if you own the property jointly with your spouse.

This exemption is designed to help you protect the equity of your home.

If for some reason, your property isn’t fully exempt, the bankruptcy trustee may sell the property in order to reduce the amount of your unsecured debt after you receive the amount of the exemption.

Under this exemption, you can only protect your real estate or mobile home equity up to $15,500, and the property mustn’t be larger than 160 acres.

Personal Property Exemptions

If you file for Chapter 7 or Chapter 13 bankruptcy in Alabama, you may retain the following types of exempt properties:

  • A burial place and a church pew or seat
    • Fully exempt
  • Clothing, books, family portraits, and photos
    • Fully exempt
  • Tools of the trade
    • No limit
  • Wildcard exemption
    • You may exempt up to $7,750 for any personal property other than earned wages and your salary. You may use this exemption on any property that doesn’t have its own exemption or the exemption doesn’t cover all of it. For instance, there is no exemption for a motor vehicle, so if you want to keep your car, you can do so through the use of the wildcard exemption.

Other Alabama Exemptions

  • Wages
    • You may retain 75% of your income or 30 times the federal minimum hourly wage or 75% of earned but unpaid wages.
  • Retirement Accounts
    • The full value of your retirement accounts may be exempt. The following are the various types of retirement accounts that qualify:
      • Tax-exempt retirement accounts:
        • 401(k)s, 403(b)s, profit-sharing, and money purchase plans, SEP and SIMPLE IRAs, IRAS, Roth IRAs, ERISA-IRAs, and qualified benefits.
  • Pensions
    • Nonprofit corporations’ employees, public employees, other pensions, and IRA payments necessary for your support.
  • Retirement and disability benefits for judges.
  • Retirement, pension, and annuity benefits for teachers.
  • Qualified (spendthrift) trusts.
  • Retirement and disability benefits for law enforcement officers.
  • Retirement benefits and annuities for state employees.

Monetary Benefits

Public assistance

You may exempt the following up to the full monetary value:

  • Crime victims’ compensation.
  • Unemployment compensation.
  • Workers’ compensation.
  • Southeast Asian War POW’s benefits.
  • Aid to blind, aged, and disabled; other public assistance, including earned income tax credit.


  • Life insurance gains are fully exempt.
  • Disability proceeds up to $250 per month.
  • Annuity proceeds up to $250 per month.
  • Mutual aid association benefits are fully exempt.
  • Fraternal benefit society benefits are fully exempt.

As you can see, filing for bankruptcy won’t necessarily result in the loss of all your assets. In some cases, you may not lose much of anything at all.

Filing for bankruptcy does not have to ruin your life. If you have questions about the process, we’re here to help.

Call The Gil Law Firm today at (334) 401-4420 to discuss the details of your case.