How To File for Chapter 7 Bankruptcy in Mobile
If you're struggling with overwhelming debt and considering filing for bankruptcy, Chapter 7 may be a good option. Chapter 7 bankruptcy allows you to discharge most unsecured debts, such as credit card debt and medical bills, enabling you to start fresh.
Here's a general overview of the steps to file for Chapter 7 bankruptcy in Alabama:
- Take a Credit Counseling Course: Before you can file for bankruptcy, you must complete a credit counseling course from a Department of Justice-approved provider.
- Qualify via the Means Test: This test compares your income to the median income in Alabama. If your income is below the median, you may qualify for Chapter 7. If it is above, then Chapter 13 might be a better alternative.
- File the Petition: Once you've completed the credit counseling and means test, you can file a petition for Chapter 7 bankruptcy with the court. The petition includes information about your debts, assets, income, and expenses. If you cannot pay the fee, installment payments are available.
- Automatic Stay: Filing for bankruptcy initiates an automatic stay, stopping most creditors from attempting to collect on your debts.
- Attend 341 Meeting of Creditors: You'll be required to attend a meeting where a bankruptcy trustee will review your petition and ask questions about your finances. Creditors may attend, but often do not.
- Discharge of Debts: If all goes well, your debts will be discharged, giving you a fresh start.
If you're considering filing Chapter 7 in Alabama, working with an experienced bankruptcy attorney is crucial. At Ryan Legal Services, Inc, our Chapter 7 bankruptcy attorneys in Mobile have over 26 years of experience helping clients throughout Baldwin County and Mobile navigate the bankruptcy process. We offer free consultations, 24/7 availability, and weekend appointments in Mobile or Robertsdale to make our services convenient and affordable with available payment plans.
Why Choose Chapter 7 Bankruptcy Over Chapter 13?
A Chapter 7 bankruptcy is a liquidation bankruptcy. It involves a procedure wherein a Trustee is appointed to represent your general unsecured creditors. Trustees are hired and supervised by the United States Bankruptcy Court Bankruptcy Case Administrator.
Alabama and North Carolina uniquely utilize a Bankruptcy Administrator, unlike other states that operate their Bankruptcy Trustee program through the United States Department of Justice's Office of the United States Trustee.
In Alabama, Bankruptcy Courts supervise the Bankruptcy Administrator rather than the United States Department of Justice Office of the U.S. Trustee. The law and role of a trustee in Chapter 7 cases are similar across all states, regardless of whether the Bankruptcy Administrator or the U.S. Trustee is overseeing the process. In this context, the trustee acts as a liquidator.
When comparing Chapter 7 and Chapter 13, you should consider factors such as:
- Type of debt relief: Chapter 7 focuses on quickly discharging unsecured debts, while Chapter 13 involves a multi-year repayment plan to catch up on secured debts like mortgages and car loans.
- Impact on property: Chapter 7 may involve liquidation of non-exempt assets, whereas Chapter 13 can help you keep property by making structured payments over time.
- Income requirements: Chapter 7 is generally available to people who pass the means test, while Chapter 13 is often used by individuals with higher or more regular incomes.
- Length of the case: Chapter 7 cases usually last only a few months, while Chapter 13 repayment plans typically run three to five years.
Should I Liquidate Everything I Own?
This is a commonly asked question when considering contacting a Chapter 7 bankruptcy attorney. You would not be subjecting yourself to a Trustee who sells all your property. Alabama law provides legal protections called “exemptions.” It is crucial to consult with an Alabama bankruptcy attorney who understands how these exemptions apply to your circumstances.
Many people in Mobile and Baldwin County are surprised to learn that most Chapter 7 cases are considered “no-asset” cases, meaning there is no property that the trustee actually sells for the benefit of creditors. Your home, vehicle, retirement accounts, and personal belongings may be at least partially protected by Alabama exemption laws if your situation is properly evaluated in advance. When you work with a Mobile Chapter 7 attorney who regularly practices in the United States Bankruptcy Court for the Southern District of Alabama, you can get a clearer picture of what property you are likely to keep before you decide to file.
Common examples of property that may be protected by exemptions include::
- Equity in a home: A portion of the value of your primary residence may be protected, depending on how much equity you have and how the exemption laws apply.
- Personal vehicles: Some or all of the equity in your car or truck may be exempt, especially if you still owe money on a valid loan.
- Household goods: Everyday items such as furniture, clothing, and basic household appliances are often protected up to certain values.
- Retirement accounts: Many tax-qualified retirement accounts receive strong protection under federal and state law.
Can I Keep My Car in Chapter 7 Bankruptcy When There Is a Lien on It?
Before filing for Chapter 7, a bankruptcy lawyer would first verify that the lien on your vehicle was properly recorded under Alabama law to confirm that it is a valid, publicly noticed lien. This is usually not a problem for the major auto lenders, major banks, and credit unions.
It may become a problem if you bought your car and financed it at a local “buy here, pay here” type business. It is more likely that the paperwork was mishandled or an error in the filing of the lien. Sometimes, a delay in filing the lien on the vehicle can enable a Chapter 7 bankruptcy trustee to sell the car.
The bankruptcy trustee has to pay off the full balance of a publicly noticed lien on a vehicle. In addition, the debtor has to be paid the full value of any exemption taken on vehicle equity.
In a Chapter 7 case, this has the practical effect of discouraging the bankruptcy trustee from selling a vehicle where there is a lien plus available exemption(s) that protect most of the value of the car.
For example, a $15,000.00 vehicle (value) with a $10,000 lien (an auto loan that complies with the above requirements for timely filing and recording with the Secretary of State) and a $4,000.00 vehicle exemption would leave $1,000.00 in unprotected equity in the vehicle if the debtor files for Chapter 7.
The bankruptcy trustee has to weigh the risk of paying to tow the vehicle, advancing the auctioneer fees, insurance costs, and other costs of sale, and having to pay the lienholder and the debtor the available exemption out of the sale proceeds.
With a small amount of unprotected equity in the vehicle, it would be unwise for the trustee to sell the vehicle. So long as the debtor remains current with the loan payments, the debtor would be able to keep this vehicle in a Chapter 7 bankruptcy case.
If the non-protected equity in the vehicle is more than $1,000.00, then you start to get into an area where the debtor may have to offer some money to the bankruptcy trustee to “buy back” the equity from the bankruptcy estate. Remember that the filing of the Chapter 7 case puts all of the debtor's property into the bankruptcy “estate.” There is a sorting-out process as the case is administered to see what amount of property, if any, has to be liquidated and paid over to creditors.
Understanding the Means Test for Chapter 7 Bankruptcy
In Alabama, the means test is a crucial step toward determining eligibility for Chapter 7 bankruptcy. This test is designed to prevent individuals with sufficient income from filing for Chapter 7 and opting for Chapter 13 instead. The test begins by comparing your average monthly income with the median income for a household of your size in Alabama. If your income is below the median, you may automatically qualify for Chapter 7. However, if it is above, further calculations are needed to deduct certain allowable expenses to determine your disposable income.
Understanding the specifics of allowable expenses can be intricate but essential for passing the means test. These expenses generally include costs such as food, housing, and transportation. In particular, local living expenses can be factored into determining your eligibility, allowing a clearer picture of your financial standing and your eligibility for filing under Chapter 7. Consulting a bankruptcy attorney can provide clarity on the use of the means test and aid in accurate calculations to ensure eligibility.
Key pieces of financial information you will typically need for the means test include::
- Recent income records: Pay stubs, profit-and-loss statements for self-employment, and other proof of income for the past several months.
- Household expenses: Documentation of rent or mortgage payments, utilities, insurance, and other regular living costs.
- Debt information: Statements for credit cards, medical bills, personal loans, and any secured debts such as car notes or mortgages.
- Tax and financial history: Recent tax returns and information about any significant financial changes that could affect your eligibility.
What To Expect in a Mobile Chapter 7 Case
When you file a Chapter 7 case in the Southern District of Alabama, your case is processed through the United States Bankruptcy Court in Mobile, and the timeline usually follows a predictable path. After the petition is filed, the court issues a case number, and the automatic stay goes into effect, which can stop most collection actions such as lawsuits, wage garnishments, and foreclosure sales. Within a few weeks, you will receive notice of your 341 meeting of creditors, which is typically held in or near downtown Mobile, and you will need to bring identification and certain financial documents with you.
Over the next several months, the trustee and creditors have an opportunity to review your paperwork and raise any questions, but in many routine Chapter 7 cases, there is little follow-up required beyond the 341 meeting. You will also complete a second financial management course required under federal law before the court can enter your discharge order. A Chapter 7 attorney can help you understand how local practices in Mobile and Baldwin County may affect the length of your case and what you should do during this period to avoid jeopardizing your discharge.
