Alabama Bankruptcy Laws: Exemptions, Chapters, and Filing Steps

Alabama bankruptcy laws combine the federal rules in Title 11 of the U.S. Code with a state-specific set of property exemptions and an unusual administrative twist: Alabama is one of only two states (with North Carolina) that runs bankruptcy cases through a Bankruptcy Administrator rather than the U.S. Trustee Program. That affects which office oversees your case and approves the counseling providers you’re required to use. What follows is what an Alabama filer needs to know about keeping property, qualifying for Chapter 7 or Chapter 13, and moving through the process, using the figures in effect for filings in 2026.

What Property You Can Keep

Alabama has opted out of the federal bankruptcy exemption list, so you must use Alabama’s own protections instead of the default federal set that filers in many other states can choose.1Alabama Legislature. Alabama Code 6-10-11 – Exemptions in Federal Bankruptcy The dollar amounts are adjusted every three years for inflation, with the most recent adjustment effective April 1, 2024.2Office of the Alabama State Treasurer. Consumer Price Index Law

Two exemptions do most of the work for a typical household:

Some categories are protected regardless of value. Necessary clothing for you and your family, family portraits and pictures, and books used in the household are fully exempt under the personal property statute.4Alabama Legislature. Alabama Code 6-10-6 – Personalty Public assistance benefits, including Social Security and similar government payments, are shielded from both the trustee and your creditors.5Alabama Legislature. Alabama Code 38-4-8 – Assistance Grants Exempt from Taxes, Levy, Garnishment, or Other Process, and Inalienable; Bankruptcy Retirement accounts such as 401(k)s and IRAs receive protection under overlapping federal law.

Chapter 7 or Chapter 13: Which One You Can File

Chapter 7 wipes out most unsecured debts within a few months, but only if you qualify under the means test. The test compares your household’s average monthly income over the previous six months to the Alabama median income for a household of your size. The figures effective for cases filed on or after November 1, 2025 are:6United States Department of Justice. Census Bureau Median Family Income By Family Size

  • One earner: $62,672
  • Household of two: $75,465
  • Household of three: $90,321
  • Household of four: $104,003

Fall below the applicable figure and you qualify without further review. Come in above it and the test isn’t over. A second calculation subtracts standardized IRS allowances for housing, transportation, food, and other necessities from your income to see whether you have enough left over to fund a meaningful repayment plan. If you do, the court will presume Chapter 7 isn’t available and steer you to Chapter 13.

Every income source counts in the calculation: wages, bonuses, freelance earnings, rental income, pensions, and regular contributions from other household members. Underreporting is one of the fastest ways to have a case dismissed or to draw a fraud allegation.

Chapter 13 is the alternative when your income is too high for Chapter 7, or when you need time to catch up on a mortgage or car loan you’ve fallen behind on. You propose a plan that pays your disposable income to creditors over a fixed period, and its length depends on your income compared with those same median figures.7Office of the Law Revision Counsel. 11 USC 1322 – Contents of Plan Below-median filers can propose a plan of up to three years, extendable to five for cause. Above-median filers must run the plan for five years.

Chapter 13 also carries statutory debt limits. Filers whose total debts exceed the current ceiling have to use Chapter 11 instead, which is significantly more complex and expensive. The limits are periodically adjusted, so confirm the current numbers with the local bankruptcy court or an attorney before filing.

Debts That Won’t Go Away

Not every debt is wiped out by a discharge. Federal law lists categories that survive bankruptcy, and this is where filers most often get caught off guard:8Office of the Law Revision Counsel. 11 USC 523 – Exceptions to Discharge

  • Child support and alimony survive every chapter of bankruptcy.
  • Student loans are not discharged unless you can prove undue hardship, a standard courts interpret narrowly.
  • Recent income taxes typically survive. To be eligible for discharge, the tax generally must be at least three years past due, the return must have been filed at least two years before the petition, and the tax must not have been assessed within 240 days of filing.
  • Debts obtained through fraud, including luxury charges over $900 run up within 90 days of filing, can be challenged by the creditor.
  • Debts for injuries or death caused by driving under the influence are not dischargeable.
  • Most criminal fines, penalties, and court-ordered restitution survive.
  • Debts you leave off your schedules may not be discharged if the creditor didn’t learn of your case in time to file a claim.

That last point matters more than filers realize. Omitting a creditor doesn’t just risk keeping the debt alive; it can also draw the trustee’s attention to the rest of your paperwork.

How to File in Alabama

Alabama has three federal judicial districts: the Northern District (Birmingham), the Middle District (Montgomery), and the Southern District (Mobile). You file in the district where you live.9United States Bankruptcy Court. Middle District of Alabama The filing fee is $338 for Chapter 7 and $313 for Chapter 13.10United States Courts. Bankruptcy Court Miscellaneous Fee Schedule If you can’t pay the fee upfront, you can request installments or, in Chapter 7, apply for a fee waiver.

Credit Counseling Before You File

Federal law requires a credit counseling course from an approved agency, completed within 180 days before you file.11Office of the Law Revision Counsel. 11 USC 109 – Who May Be a Debtor Because Alabama uses the Bankruptcy Administrator system, the list of approved agencies comes from the Bankruptcy Administrator for your district rather than the U.S. Trustee.12United States Courts. Trustees and Administrators You’ll file the completion certificate with your petition.

Documents to Gather

  • Your most recent federal income tax return, which the trustee must have before the meeting of creditors. In a Chapter 13 case, all returns for the four preceding tax years must be current.
  • Pay stubs or other proof of income covering the 60 days before filing.
  • A detailed inventory of everything you own, from real estate and vehicles to bank accounts and household items.
  • The name, mailing address, and balance owed for every creditor, including medical providers, credit card companies, and collection agencies.

Official bankruptcy forms are available through the U.S. Courts website. You start with the Voluntary Petition and then complete schedules showing current monthly income and expenses.13United States Courts. Bankruptcy Forms The forms are repetitive by design; mistakes and omissions delay cases and draw trustee scrutiny.

The Automatic Stay

The moment your petition reaches the clerk’s office, the automatic stay takes effect. Under federal law, creditors have to stop lawsuits, wage garnishments, repossessions, foreclosures, and even collection calls.14Office of the Law Revision Counsel. 11 USC 362 – Automatic Stay Creditors who violate the stay can face court sanctions. For most filers, this is the most immediate relief bankruptcy provides.

The 341 Meeting of Creditors

After filing, a trustee is assigned and schedules a meeting of creditors, commonly called the 341 meeting. You must attend, verify your identity with a government-issued photo ID and proof of your Social Security number, and answer questions under oath about your finances. Creditors can attend, though in ordinary consumer cases they seldom do. Meetings are usually brief, but being unprepared or evasive can push the trustee to ask for more documents or a follow-up session.

The Second Course Before Discharge

Before the court will grant a discharge, you must complete a second course focused on personal financial management. It’s separate from the pre-filing counseling and must be taken after you file.15United States Courts. Credit Counseling and Debtor Education Courses Skip it and the court can close your case without granting the discharge, meaning you went through the entire process for nothing.

Keeping a Car or House After Chapter 7

Chapter 7 wipes out your personal liability on most debts, but it does not remove liens on secured property like a vehicle or a house. If you want to keep a financed car, you generally have two options: reaffirm the debt or continue paying informally.

A reaffirmation agreement is a new contract in which you agree to remain personally liable for a specific debt despite the bankruptcy. It has to be filed with the court before your discharge is entered, and you have 60 days after filing it (or until the discharge date, whichever is later) to change your mind and rescind it.16Office of the Law Revision Counsel. 11 USC 524 – Effect of Discharge If you have an attorney, they must certify that the agreement doesn’t cause undue hardship and that you understand the consequences. If you don’t, the bankruptcy judge has to review and approve it.

Reaffirmation puts the payments back on your credit report, which can help you rebuild credit faster. The trade-off is real: fall behind later and the lender can repossess the collateral and sue you for any deficiency, exactly as if you had never filed. That’s a serious risk on a depreciating asset that’s already worth less than the balance.

Some Alabama filers keep making payments without formally reaffirming, holding onto the vehicle as long as payments stay current. The underlying debt is discharged, so the lender can’t chase a deficiency if you later surrender the car. The downside is that those payments won’t show up on your credit report, and getting a clear title after payoff can be harder.

Discharge Timing and Credit Impact

In a Chapter 7 case, the discharge usually arrives about four months after you file the petition.17United States Courts. Discharge in Bankruptcy – Bankruptcy Basics In a Chapter 13 case, you don’t get a discharge until you finish all the payments under your plan, which takes three to five years.

Credit reporting differs by chapter. A Chapter 7 stays on your credit report for ten years from the filing date; a Chapter 13 stays for seven. Both cause a significant initial score drop, and both fade with time and positive credit history.

Federal law also bars government employers from firing you or refusing to hire you because you filed. Private employers can’t terminate you for filing, but courts have generally allowed them to consider bankruptcy status in hiring decisions.16Office of the Law Revision Counsel. 11 USC 524 – Effect of Discharge

Filing With or Without an Attorney

You can file bankruptcy without a lawyer in Alabama, but the process is unforgiving. Attorney fees for a Chapter 7 case typically run from roughly $800 to $1,500 on top of the filing fee. Chapter 13 fees are usually higher, but they can often be folded into your repayment plan rather than paid upfront. Many bankruptcy attorneys offer a free initial consultation, which is worth using even if you plan to file on your own.

Filing pro se adds real friction. Reaffirmation agreements require judicial review when you’re unrepresented, which adds a hearing. Trustees and judges tend to look at pro se filings more closely, and a mistake on your schedules that an attorney would routinely catch can cost you an exemption or the case itself. Straightforward Chapter 7 cases with few assets and no complications sometimes go smoothly without counsel. Anything involving a house, meaningful property, or Chapter 13 is where the money for an attorney usually pays for itself.