Being overwhelmed by debt seems to be the “American way”. However, there comes a time when being overwhelmed turns into literally drowning in debt, being harassed by creditors, and facing repossession or foreclosure. So when, exactly, should you seriously consider filing for bankruptcy?
I usually tell my clients that when you are unable to make anything except minimum payments, when you are losing sleep over your financial situation, or when you are being harassed by creditors to the point that you actually screen your telephone calls or are receiving calls at work, that is when you need to seek out a solution. You are no longer just struggling with debt, you are now allowing debt to affect your life. The actual amount of debt you owe is not a gauge to use in considering filing bankruptcy. Instead, your ability to manage the debt and repay the debt should be considered.
First things first. Learn about bankruptcy. Get educated. And the best way to do so is to consult with an experienced bankruptcy attorney in your state. Although bankruptcy is a federal program, the nuances can vary dramatically by state, meaning that your options as to which chapter of bankruptcy you may qualify to file may be different depending on your state.
An experienced bankruptcy attorney will be able to answer the following questions for you:
On June 11, 2015, Governor Robert Bentley signed into law ACT No. 2015-484, and it became effective the same day, increasing the Alabama property limits for the first time since 1982. Now, the homestead exemption (the amount of allowable equity in the home/land where the person resides, up to 160 acres) for an individual is $15,000 (or $30,000 for a couple) and $7,500 for personal property (any asset owned by a person that is not land) for an individual (or $15,000 for a couple). This is great news for Alabamians who are forced to turn to bankruptcy to protect their property from foreclosure, repossession or the possibility of losing property to the Trustee in the bankruptcy process. Prior to this amendment, the homestead exemption was $5,000 (or $10,000 for a couple) and $3,000 for personal property (or $6,000 for a couple).
Another benefit to this change in statute is the mandatory adjustment that will occur every three years beginning July 1, 2017. Because of the mandatory automatic adjustments, Alabamians’ property will be protected in the future and their standard of living, even while in bankruptcy, will be proportionate to that of our neighboring states.
What Are Exemptions Anyway?
You may wonder….what is an exemption? What does that mean? When a person looks to filing a bankruptcy, the state in which the person resides dictates how much property and assets a person may have that are protected or “exempt” from being seized by the bankruptcy court. Each state has different exemption limits, Alabama’s being one of the lowest in the nation.
An exemption in bankruptcy allows a person to keep certain property or assets even after bankruptcy is filed. The exemptions are defined by statute and exempt property cannot be seized or sold to satisfy the debts of the person filing for bankruptcy. For example, let’s say you own a car valued at $2,750 with no lien by any creditor plus other household goods, furniture and jewelry valued at $1,200.00. So the total value of your personal property is $3,950. Under the new exemption statute just passed, you would not lose any of your property if you filed Chapter 7 because the exemption allowed is $7,500 for personal property. Under the old exemption amount, you would be over by $950 and could have possibly lost some of your property. The same would be true as to your residential home. (Please note, to claim the homestead exemption, you must live on the property the date your case is filed.) An example as to the homestead exemption would be this: your home is valued at $175,000 and you owe a mortgage company $160,000. In this scenario, you have equity in your home of $15,000. Under the new law, the equity in your home is protected. Under the old exemption amount, you would have excess equity of $10,000 that could not be protected from creditors or a trustee in Chapter 7 bankruptcy. So you can see what exciting news this new law is to those seeking protection from creditors.
In Chapter 13 bankruptcy, the bankruptcy exemptions play a role — they determine the minimum amount you must pay to unsecured creditors through your Chapter 13 plan. This amount can mean the difference between a successful Chapter 13 and being unable to fund a plan.
Many thanks must go to Alabama Appleseed Center for Law & Justice for advocating for these changes for the last three years. We must also thank the sponsors of the bills, Senator Cam Ward (R-Alabaster) and Representative Jim Hill (R-Moody) and the members of the legislature who voted unanimously for these increased exemptions. Finally, I must give a huge thank you to Governor Bentley for immediately signing the bill into law.
If you are in the Wiregrass or Ozark Alabama region, have met with an attorney to discuss bankruptcy previously but did not go forward with filing because the payment was too high due to equity in real or personal property or you would possibly lose property, please call Samantha Valenzuela at The Valenzuela Law Firm, LLC so she can re-evaluate your financial situation in light of these new exemptions. You may be on your way to a fresh start!