Bankruptcy in Alabama
Financial hardship can strike suddenly, and when it does, it can feel overwhelming. If you’re an Alabama resident grappling with mounting debt, you’re not alone, and you have options.
Bankruptcy may offer the fresh start you need. Whether it’s due to medical bills, job loss, or unexpected expenses, many people turn to bankruptcy as a legal way to regain control over.
Alabama’s bankruptcy laws include exemptions and procedures that differ from those in other states. For example, Alabama’s homestead exemption is more limited than in other parts of the United States. That’s why it’s critical to speak with someone who understands both the law and your unique financial situation.
If you’re considering bankruptcy, don’t navigate the process alone. Take the first step toward peace of mind by connecting with a local attorney who can explain your rights and help you choose the best path forward.
Types of Bankruptcy in Alabama
Bankruptcy is a legal tool designed to help individuals and businesses in Alabama regain control of their finances. It can discharge certain debts entirely or reduce them, giving filers a chance to move forward without the weight of past obligations.
However, approval requires proof of financial hardship—specifically, that you’re unable to stay current on your financial responsibilities. It’s also important to know that not every type of debt is eligible for discharge.
For those struggling to keep up, Chapter 7, Chapter 11, and Chapter 13 are the most common forms of bankruptcy. Each offers different benefits depending on your income, assets, and long-term financial goals.
In Alabama, bankruptcy cases are handled by the United States Bankruptcy Courts for the Northern, Middle, and Southern Districts of Alabama. Each district serves specific counties and operates under the federal bankruptcy code, with court locations in cities such as Birmingham, Montgomery, and Mobile.
Chapter 7 Bankruptcy
Most individuals who qualify for Chapter 7 have limited income or have experienced a financial setback. While the process can erase many types of debt, you may have to surrender some assets, including your vehicle or home.
Once you file, an automatic stay temporarily halts most collection actions, such as garnishments and foreclosures. But this protection does have limits. Debts like child support, criminal restitution, and certain fines remain enforceable even during bankruptcy.
To qualify for Chapter 7 bankruptcy, individuals must pass a means test that evaluates their income, expenses, and overall financial situation. This test compares your average monthly income over the past six months to the median income for a household of your size in Alabama.
The median income thresholds for Alabama residents applying for Chapter 7 bankruptcy in 2025 are as follows:
- 1-person household: $60,786
- 2-person household: $72,639
- 3-person household: $83,278
- 4-person household: $101,771
For households larger than four, an additional $11,100 is added for each extra member.
Chapter 11 Bankruptcy
Chapter 11 bankruptcy is a more involved process, often used by businesses or individuals with substantial assets or income. It allows filers to propose a reorganization plan that restructures their debts into manageable payments over time, typically within a span of four to 18 months.
One key advantage of Chapter 11 is that it doesn’t require you to liquidate your property to meet your obligations. Instead, it offers the chance to negotiate terms with creditors and stay on track financially while keeping your assets intact.
Filing for Chapter 11 bankruptcy in Alabama begins with submitting a voluntary petition to the appropriate U.S. Bankruptcy Court. This initial filing must include detailed financial disclosures. You’ll need a list of assets and liabilities, a statement of income and expenses, and a schedule of current contracts and unexpired leases.
If you operate a business, you’ll also need to provide a recent balance sheet, cash flow statement, and statement of operations. These documents help the court and your creditors understand your financial position and evaluate your reorganization plan.
In addition to these disclosures, you must complete and file several other required forms. Failure to submit accurate and timely documentation can delay your case or result in dismissal. To ensure compliance and avoid costly errors, it’s strongly recommended that you work with a bankruptcy attorney.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy, often called a wage earner’s plan, allows Alabama residents to reorganize their debts while keeping their property. After filing, the court appoints a trustee to review your financial situation—including your income, expenses, and liabilities—to determine your ability to repay.
This chapter doesn’t involve liquidation; instead, it sets up a structured repayment plan that lasts three to five years. The terms of your plan will depend on your income stability and the assets you want to retain. If approved, you’ll make monthly payments to the trustee, who then distributes those funds to your creditors.
Before filing for Chapter 13 bankruptcy in Alabama, you’ll need to answer several key questions about your financial situation. The court will ask about your total monthly income, including wages, business earnings, and any other sources of support. You’ll also need to disclose your regular monthly expenses—everything from housing and utilities to insurance and transportation.
You’ll also be required to list all of your debts, both secured and unsecured, along with the names and contact information of your creditors. In addition, you must disclose any assets you own, such as real estate, vehicles, retirement accounts, or valuable personal property.
The court will also ask if you’ve filed for bankruptcy in the past and whether you’ve completed the required credit counseling course. Honest and complete answers are critical, as they form the foundation of your proposed repayment plan.
The Bankruptcy Process in Alabama
There’s rarely a perfect moment to file for bankruptcy, but waiting too long can make things worse. If it’s unlikely that you can repay your debts within five years, filing may help you minimize further financial damage and create a path toward recovery.
In Alabama, the first step in filing is to gather your complete financial records. This includes documentation of your monthly expenses, outstanding debts, total assets, and yearly income. The court relies on this information to assess your eligibility and determine the best course forward. Incomplete or inaccurate records can delay your case or lead to the denial of your petition altogether.
In Alabama, the bankruptcy process follows federal guidelines but applies state-specific exemptions that impact what property you can keep. After filing in the appropriate U.S. Bankruptcy Court district, the court will appoint a trustee to oversee your case and apply Alabama’s exemption laws.
Under state law, individuals may exempt up to $16,450 in equity in a home and up to $8,225 in personal property, such as furniture, appliances, or a vehicle. Wages, certain retirement accounts, and public benefits like Social Security are also protected in many cases.
In the six months leading up to your bankruptcy filing, avoid taking on new debt or making unnecessary purchases. Running up your credit cards before filing can raise red flags and hurt your case. You’ll also need to complete a credit counseling course from an approved provider, which is typically done online or by phone.
Work With an Experienced Alabama Lawyer
A qualified bankruptcy attorney can guide you through each step, from determining eligibility to protecting your property with available exemptions. If you’re ready to take control of your financial situation, we can connect you with an experienced legal professional in your area. Submit a request today and get the help you need to move forward with confidence.
Submit a request online or call us today at (866) 345-6784 to get in touch with an experienced bankruptcy lawyer in your area!
About the Author
Aaron is a professional legal writer with a B.S. in English Education from Southern Illinois University – Carbondale. He has written, published, and edited thousands of legal articles for RequestLegalHelp, which has connected over 5 million people to legal help in the United States.
With over five years of experience writing thousands of legal articles for law firms across the U.S. and Canada, Aaron specializes in covering federal, state, and city-level legal issues ranging from auto accidents to wrongful terminations.
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