The answer depends on what type of bankruptcy you are filing.

Personal bankruptcy is Chapter 7 and it allows an individual or a family to get a fresh start by having most types of debts discharged.  It stops the creditors from calling, stops garnishment of your wages, lawsuits, an eviction, and most foreclosures.

In order to collect any monies from you, creditors must seek permission from the Bankruptcy Court.

Chapter 13 is a business or personal filing which allows you to reorganize your debt. With Chapter 13 you will be expected to make payments on a regular schedule that is set by the court.

Documents Needed for Personal Bankruptcy Filing

As part of your filing you will be required to take a credit counseling course offered by companies preapproved by the bankruptcy administrator. After the two-hour course you will receive a certificate of completion. That should be included in the documents you provide to the courthouse when you file your case.

You will also need a financial management course before filing. Proof of this also must be included in the filing. You will need to download or obtain all of the forms required for an Alabama bankruptcy.

Don’t feel overwhelmed. There are about 23 separate forms that require a summary of your assets and liabilities, a list of all property you own such as a house, clothes, and furniture. You will also have to list all bank accounts, stocks, bonds, and life insurance. You will have to state how much you make each month and your expenses.

After filling out the forms, make sure you check them for accuracy.

Other documents needed include:

*Your recent tax return – If you don’t have one, you will have to file your taxes.

*A copy of your credit report from three agencies
*A list of every one of your debts

* Include the mailing address of the above
* All pay stubs for the last six months – You must prove you have less income than most Alabamians. If not, you must file for Chapter 13 bankruptcy instead.

Chapter 13 bankruptcy is used when you are still earning wages but need to consolidate your debts. You must come up with a payment plan under Chapter 13.

Alabama Bankruptcy Exemptions

It is not necessarily true that you will lose all of your property when you file a Chapter 7 bankruptcy.

There will be a list of exempt properties you should include in your filing. They include:

  • Homestead – You can keep up to $15,000 in equity and up to 160 acres in property with the house on it, which can also include a mobile home or similar structure. If you are married and you both are filing for bankruptcy, the exemption for property will double if you both have ownership in the property, bringing it to a $30,000 in exemption.

  • Automobile – While the state does not have a specific exemption for a motor vehicle, you can use what’s known as a “wild card” exemption to protect ownership of your car.

  • Personal Property – If you own a burial plot, clothing, family photos or portraits, books, even life insurance proceeds can be considered exempt personal property.

  • Retirement Account – Any IRA, Roth IRA, or a retirement account is exempt if it’s qualified under the Internal Revenue Code.

  • Tools of the trade – be sure to list any uniforms or arms you’ve acquired if you are in the military, which is exempt under Alabama Code.

Some debt is not exempt. That includes child support, alimony, payments due to drunk driving, student loans, and a most tax debt.

In order to file for Chapter 7 bankruptcy in Alabama, the fee is $335.   

Consumer Law Assistance with Bankruptcy

While the forms you need to file Chapter 7 are online, you are sure to have questions. Make sure you ask them before filing as it will be difficult to amend your filing afterward.

A consultation with an experienced bankruptcy personal injury law firm will help you determine which is better for your current circumstance – Chapter 7 or Chapter 13.  

We can work with you on constructing a payment plan to take care of your debts and create a realistic plan for repayment when we consider your income. 

If you have medical bills expected to continue in the future, we should discuss which bankruptcy might best suit your needs. Once you have filed Chapter 7, you cannot do so again for at least eight years.

There are so many variables with bankruptcy, and it is easy to make a mistake if you do not have strong legal counsel. Consulting with our experienced bankruptcy lawyers at the Cochran Firm – Birmingham will keep you from making mistakes and help preserve your assets and credit score to the best of your ability.

Please message us online or call our Birmingham office at (205) 994-8555 for a free initial consultation with a member of our legal team.

Bankruptcy. It is a real option when you simply cannot pay your bills. That can happen to all of us, just as life happens. 

You may experience a job loss, a failed business, divorce, unexpected medical bills, or hours being cut. Any major impact to your income will interrupt your ability to pay your bills, and if your finances stay in trouble, bankruptcy may be your only option.

Filing a Chapter 7 bankruptcy will place an automatic stay on your debt, because your assets are technically in the hands of the bankruptcy court.

Chapter 7 Bankruptcy

This option will give you a clean slate if you can qualify. Chapter 7 allows unpaid credit cards, medical bills, and most other unsecured debts to be swept clean and a stay stops most creditors from collecting from your wages or your bank account. 

Filing a Chapter 7 bankruptcy means creditors can no longer harass you with phone calls. Please note, however, that not all bills can be discharged. 

If you are facing a lien on your property, that cannot be discharged. Neither can child or spousal support. If you are facing an auto accident claim involving drunk driving, for example, that too cannot be discharged.

In order to meet your remaining bills, you may be forced to sell off your property depending on the result of a “means test.”

If you have a valuable car, which you own, you may have to sell it and afford a less valuable vehicle.  If you are still making payments, you don’t technically own it and you may be able to keep it minus any equity.  You may have to sell your house if it does not qualify under the homestead exemption.

When your assets versus your debt is calculated, if your assets exceed your debt, you may not qualify and may have to choose Chapter 13 debt consolidation instead.

Chapter 13 Bankruptcy

If you do not pass the means test, you may opt for Chapter 13 bankruptcy. This means you have some income and with a reasonable payment plan, you can pay off your creditors in three to five years. Chapter 13 also places an automatic stay that stops wage garnishments.

What is Wage Garnishment?

Wage garnishment may be another way to resolve your debt, but there is a process the creditor must undergo.

If you owe a credit card bill, or have a medical debt, or student loans, your creditors can’t just start grabbing your wages. They must first sue you in court and win a judgment which requires you to pay what you owe.

The only exception to that is the Internal Revenue Service, which can take a big chunk out of your wages without a court order.

After your creditors have sued you and proven their case in court, they can obtain an order to garnish your wages.

Wages may be garnished to pay back student loans, back taxes, child support, or any court judgment against you.  Under federal law, there is a limit to how much creditors can take from each paycheck. It may be limited to 25% of disposable income, that is, whatever is left over after your employer has made the required deductions by law.  

Under federal law, you cannot be fired or retaliated against if you have your wages garnished. At least to pay one debt.  If there is more than one garnishment, federal law does not protect you from retaliation. 

An Experienced Bankruptcy Law Firm

You may want to protest wage garnishment if you feel too much is being taken from your paycheck monthly. The Cochran Firm, Birmingham can help protect you during this difficult time. Consult with our experienced and compassionate attorneys to make sure you are claiming all the exemptions you have the right plan in place to get back on your feet financially.

Please call us at 1-800 The Firm or 205-994-8555 to reach our office so our lawyers can talk a look at your case and help protect your rights.

For individuals who have fallen on hard times financially, bankruptcy can be a good way to obtain financial relief and gain a fresh start. There are two general types of bankruptcy that are available to consumers; Chapter 7 and Chapter 13. Chapter 7 is also known as a “straight bankruptcy” or “liquidation bankruptcy” in which qualifying debts can be discharged (i.e., forgiven). Chapter 13 is a court-supervised debt consolidation/repayment plan in which the debtor repays his/her debts over a three to five-year period with a more affordable monthly payment.

Most unsecured debts can be discharged with a Chapter 7 bankruptcy. Some common debts many consumers struggle with that can be eliminated through Chapter 7 include credit cards, unsecured personal loans, and medical bills. There are some unsecured debts, however, that you cannot get rid of through Chapter 7. Among the most notable non-dischargeable debts include student loans and most tax debts.

When can Income Taxes be Discharged through Chapter 7 Bankruptcy?

While most of the time, you are not allowed to eliminate federal income tax debt through a straight bankruptcy, it is possible to have income taxes discharged if you meet certain criteria:

  • What you Owe is Actual Income Tax Debt: Tax debt cannot be discharged under any circumstances if it is anything other than income taxes. This would include payroll taxes (such as Social Security and Medicare), penalty assessments, and tax debt that has been converted into a tax lien and secured by your personal property.
  • You did not File a Fraudulent Tax Return or Commit Willful Tax Evasion: You did not falsify any of the information on your return (e.g., use a false Social Security number), fail to report income, deduct expenses that are not allowed, or participate in any other activity that would be considered tax fraud or tax evasion.

In addition to meeting these two conditions, there are three other criteria that must be met having to do with the timing of the tax return due date, the date when the return was actually filed, and when the tax debt was finally assessed:

  • The Three-Year Rule: The filing deadline for the tax return in question must have been at least three years prior to the date in which to file for bankruptcy. For most individuals, the annual deadline for filing your federal tax return is April 15. So, for example, if you filed for bankruptcy after April 15, 2019, you would meet the first qualification test for discharging income tax debt from the 2015 tax year, in which the filing deadline was April 15, 2016.
  • The Two-Year Rule: If you meet the three-year rule, it is usually pretty easy to meet the two-year rule. The two-year rule applies to the date in which you actually filed your tax return. This date must be at least two years prior to the day you file for bankruptcy. Looking at the previous example, the filing deadline for the 2015 tax year was April 15, 2016, so as long as you filed your return on or before April 15, 2017 (up to one year late), you would meet the two-year rule.
  • The 240-Day Rule: The income tax must have been assessed by the IRS at least 240 days (about 2/3 of a year) prior to filing for bankruptcy, or not assessed at all. In general, the tax assessment date is considered to be the same date the IRS receives and processes your tax return. However, that date could be different if the IRS audits your return later on and assesses a different amount.

Can you Discharge Income Taxes through Chapter 13 Bankruptcy?

Some consumers who do not qualify for Chapter 7 bankruptcy or do not want to go that route opt for a Chapter 13 bankruptcy. With this type of bankruptcy, unpaid income taxes will usually be considered priority debt, which means it must be paid back in full. However, if you owe actual income tax debt, you did not commit tax fraud or willful evasion, and you meet all the aforementioned timing requirements, your tax debt may be considered non-priority, in which case you might not have to pay it all back.

Speak with a Seasoned Alabama Bankruptcy Lawyer

Figuring out which tax debts can be discharged through bankruptcy can be complicated. There are specific guidelines that must be met, and it is important to work with attorneys who have extensive bankruptcy experience, so you can emerge from the process in the best possible financial position. For a personalized consultation with one of our experience Alabama bankruptcy lawyers, call our office today at (205) 244-1115 or 1-800-THE-FIRM. You may also message us through our online contact form.