Exempt assets are certain assets that do not become a part of your “bankruptcy estate” and, thus, cannot be taken by creditors or included as a part of the bankruptcy case. These “exempt assets” are defined under the Bankruptcy Code by either federal statute or Alabama law. Some exempt assets are exempt up to a certain value, and some exempt assets can be of unlimited value.
The Homestead Exemption protects the equity in your home. The equity is calculated by taking the value of your home less the outstanding mortgage due on the home. In Alabama, you are is entitled to $30,000 exemption of the equity in your home (which doubles to $60,000 if you are filing jointly with a spouse).
For example, if your home is worth $200,000, and the payoff on your mortgage is $150,000, then you have $50,000 equity in your home. Under the current Bankruptcy Code and applicable Alabama statutes, you would be entitled to keep $30,000 of the equity in your home, and you and your spouse filing jointly would be entitled to keep all $50,000 in equity in your home, and still discharge all of your remaining debt.
Household Goods and Furnishings and Clothing
Each debtor is entitled to keep reasonable household goods, furniture, and clothing. This may not include unnecessary or high-value items.
Life Insurance Policies and Annuities
Most life insurance benefits and annuities are exempt in a bankruptcy case. There may be exceptions applicable here, including the amount of the annuity.
Worker’s Compensation or Disability Benefits
These payments are generally exempt but may be subject to a limitation based on the amount of the payment.
Tools of a Trade
Alabama law permits you to exempt certain “tools” used in carrying out your trade or business.
75% percent of any wages owed to you are exempt.
However, practically speaking, this exemption has little meaning, as it would only apply if you filed your petition after the work was performed but before you were paid. Thus, if your paycheck is received on a Friday, but is for the work done for the two weeks that ended on the previous Friday, and your petition filing was in the middle of the two Fridays, you would only be entitled to keep 75 percent of the paycheck as exempt. The amount of non-exempt wages and salary is normally so small that the bankruptcy trustee does not bother taking it.
NOTE: In a Chapter 7 case, all of your future earnings (i.e., all wages earned by you after the filing of your petition) are not a part of the bankruptcy estate and are kept by you. In a Chapter 13 case, those wages are what is used to pay creditors under your plan.
Wild Card Exemption
Alabama statutes also allow for a “wild card” exemption of up to $7,750.