How Alabama Bankruptcy Exemptions Protect Your Assets

Exemptions allow you to protect certain assets in bankruptcy, such as your home or other personal property. However, exemptions vary per state, so it’s important to know the exemptions if you are filing for bankruptcy in Alabama. Let’s review in detail those Alabama bankruptcy exemptions, including the tools of the trade exemption and the wildcard exemption.

Key Points:

• Learn about Alabama’s bankruptcy exemptions to protect your assets.
• If you have not lived in Alabama for more than 730 days, you can’t use the state’s exemptions.
• Alabama’s bankruptcy court system is divided into three districts (Northern, Middle, Southern).
• Information on the bankruptcy court and trustee is available via this post

Requirements to File for Bankruptcy in Alabama

First and foremost, to file in Alabama, you not only have to reside in the state, but you have to have resided there at least 91 days out of the last 180 days. However, you must reside in Alabama for 730 days to qualify for the exemptions of the “Heart of Dixie” state. If you have not lived there for 730 days, you would apply for bankruptcy exemptions from the state you resided in before.

• Filing for Bankruptcy After Moving? Keep Your Exemptions!

If you haven’t resided in Alabama for the full 730 days or are even planning to relocate to another state, it’s important that you compare the bankruptcy exemptions of both states to determine which state better protects your assets. This will determine if you need to file sooner rather than later, or the reverse.

It’s important to note that while bankruptcy law is federal law, the Bankruptcy Code allows each state to decide whether it will have its own exemptions or use the federal exemptions. So, exemptions do vary per state. That’s why the residency issue is so important.

Finally, the Bankruptcy Code in Section 522, requires that you have owned the home a total of 1,215 days for Alabama’s homestead exemption to apply.

Alabama’s Bankruptcy Exemptions

First, let’s start with Alabama’s homestead exemption, which stands at $18,800. Honestly, that’s not a lot of protection for your home. When I see that the homestead exemption is low for a state, I already know that more Chapter 13 bankruptcies are filed than Chapter 7.

For example, the Alabama Bankruptcy Court System is divided into three districts: Northern, Middle, and Southern.

For the year ending in 2023, in the Northern district, there were 3,325 Chapter 7 bankruptcies filed, versus 5,558 Chapter 13 cases filed. The Middle District had 895 Chapter 7 bankruptcies filed versus 4,599 Chapter 13 filings. The Southern District was 700  (Chapter 7) versus 2,631 (Chapter 13). These figures are produced by the U.S. Bankruptcy Court System.

Applying the Bankruptcy Exemptions

With the homestead exemption at $18,800 as of April 1, 2024, that is the amount deducted from your home’s equity. For example, the average home value in Alabama is $227,508. The average mortgage balance is $171,883. Subtracting those two figures leaves $55,625 in equity. Now applying the exemption (55,625-18,800) means there is $36,825 available. That is the amount of equity not protected. What happens next?

Nonexempt Equity

The equity that is not protected belongs to the bankruptcy estate. That means that amount is required to be paid back to the bankruptcy trustee, who uses those funds to distribute to your creditors. In this case, it’s not likely that $36,825 can be paid back quickly to the trustee, so Chapter 13 would be filed instead to pay back that amount over the next 36-60 months.

Other Exemptions Offered in Alabama: The Wildcard Exemption

Most states offer an automobile exemption to protect your car’s equity. Alabama does not. However, Alabama does offer what is known as a “wildcard exemption.” This means any leftover exemptions you have can be used to protect your car. The total exemption for personal property is $9,400 under the Alabama Code, specifically in Title 6, Chapter 10, Section 6.

For example, suppose your car has $4,000 in equity. You have used $5,000 of your exemptions (9,400-5000), leaving you with $4,400.  Now subtract the $4,400 from your car’s equity ($4,000) which leaves $400 nonexempt. Since the amount is minimal, chances are the bankruptcy trustee would waive their interest in your car. I recommend sites such as Kelley’s Blue Book for an estimate of your car’s value.

• Great! The Bankruptcy Trustee Abandoned Your Car

The Tools of the Trade Exemption

The tools of the trade exemption is not offered in every state. It is a specific exemption that relates to the assets of a business. Many states just use the personal property exemption for business assets. However, the tools of the trade exemption is a good way to protect your business. However, the catch with Alabama is that it is part of that total $9,400 exemption that works as the wildcard exemption.

For the contact information on bankruptcy trustees in Alabama, please follow this link. For the Alabama Bankruptcy Court contact details, please try this link.

You can learn more about filing for bankruptcy and the bankruptcy petition via this link. Information on the bankruptcy court system, contact information for trustees, and your state’s exemptions can be found here. The federal bankruptcy exemptions are listed here. The latest version of the 341 Meeting of the Creditors can be found here.

Colleges and universities can purchase my bankruptcy law textbook directly from Routledge Publishing. For paralegals and students buying single copies, you can do so via Amazon Books. To access my YouTube channel, click this link.

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• Bankruptcy
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Please note that the information on this site does not constitute legal advice and should be considered for informational purposes only.

Updated on May 10, 2025.

Updated on September 10, 2025.