Filing bankruptcy gives protection against legal actions many creditors turn to when trying to collect what is owed them. While bankruptcy law is primarily handled on the federal level, some local laws affect the way your bankruptcy case will be handled in Alabama.

Bankruptcy Exemptions

When you file bankruptcy, certain types of property will be protected from your creditors. In the state of Alabama, you must take only the state exemptions. Even if federal exemptions are better for your situation, you cannot take them. Alabama bankruptcy law allows the following exemptions:

• Real property or mobile home, up to $5,000. Note that property cannot be more than 160 acres.
• Proceeds from annuity, up to $250 monthly
• Proceeds from disability payments, up to $250 monthly
• Church pew, burial plot, books, clothing considered necessary, family picture or portraits
• $3,000 of any personal property, excluding life insurance
• Any uniform or weapons you must keep as a member of the state military
• 75 percent of any earned but unpaid wages
• Some pensions
• Some public benefits

In addition, the proceeds from your life insurance may be exempt, but only if the beneficiary is your spouse or child, or if the policy has a clause prohibiting the proceeds from being used for creditors.

Chapter 7 Bankruptcy Information

Under Alabama and federal bankruptcy law, you must pass a "means test" to declare Chapter 7 bankruptcy, which is the type of bankruptcy that liquidates most debts after selling any non-exempt property. The means test compares your income to others in your area. Your income must be at or below the median income level in Alabama. Under Chapter 7, the bankruptcy trusty sells your assets, including possibly your home, to pay back your debts, and then erases any remaining debts.

Chapter 13 Bankruptcy Information

Under Chapter 13 bankruptcy, you will have to make an attempt to pay back your debts. Your trustee will help you create a repayment plan that stretches out the payments over three to five years. Under Chapter 13, you may still be able to keep your secured assets, like your house or car, provided you can come up with a workable repayment plan. Payments are made to the trustee, who pays your creditors according to the priority structure the bankruptcy court establishes.