One of the most important factors to consider when choosing between Chapter 7 and Chapter 13 is the value of property owned by a debtor versus the amount of exemptions the debtor is entitled to under Alabama law. In June of 2015, the Alabama legislature voted to increase the amount of exemptions for Alabama debtors to $15,000 for homestead exemptions and $7,500 for personal property exemptions. Before June 11, 2015, an Alabama debtor could only claim an exemption of $5,000 for homestead and $3,000 for personal property. The legislature provided for automatic adjustment of exemptions amounts in the future by tying it to the consumer price index. This increase was the first time Alabama exemption amounts had been addressed in over 25 years.
The Alabama legislature should be applauded for raising the exemption amounts and providing for automatic adjustment, but the intended effect of these efforts, the protection of Alabama debtors, may end up being thwarted by other state law. Alabama Code Section 6-10-1 limits the amount of exemptions a debtor can claim to the amount of exemptions allowed under state law at the time the debt was incurred.
All debts of a potential Chapter 7 Bankruptcy debtor must be scrutinized to determine when the debt was incurred to prevent property from being subject to liquidation. It may be the case that a debtor’s exemptions will be different on different debts and require a bifurcation if objections to discharge or exemptions are made. Hopefully the legislature will address this issue soon to tie the amount of exemption to the date the exemption is claimed