On June 11, 2015, Governor Robert Bentley signed into law Senate Bill 327, increasing the Alabama homestead and property exemptions for the first time since 1982. The bill, sponsored by Sen. Cam Ward (R-Alabaster) and Rep. Jim Hill (R-Moody) passed unanimously by legislative members, increases the homestead exemption for an individual to $15,000 (or $30,000 for a couple) and the personal property exemption for an individual to $7,500 (or $15,000 for a couple). Prior to this amendment, the homestead exemption was $5,000 (or $10,000 for a couple) and $3,000 for personal property (or $6,000 for a couple). The exemptions will be automatically adjusted every 3 years beginning July 1, 2017 to reflect the change in the consumer price index.
The homestead exemption applies only to the family home, or principle residence, which is typically the most valuable asset of the debtor and is part of their long-term savings and retirement plan. The new exemption amount increases the equity a debtor may have in their home before a creditor can seize the property to satisfy the debt. As an example, suppose a debtor owes $150,000 on their home and the county tax assessor has valued that home at $158,000, meaning the debtor has $8,000 equity in their home on paper, i.e. less than the new exemption amount of $15,000. Under the former exemption statute, the creditor would be able to seize the home in satisfaction of the debt because the debtor has more than $5,000 equity in the property. With the new homestead exemption amount, the debtor’s equity would not exceed the $15,000 allowed; therefore, the creditor would be unable to seize the property where the debtor claims such exemption.
The personal property exemption protects items such as household goods, books, pictures, clothing, jewelry, tools, lawn equipment, and equity in a car. A creditor has the ability to seize a debtor’s car and household goods in order to satisfy the debt owed. Before the exemption increase, the debtor could keep these items only if the total value of the personal property was less than $3,000. The new law allows a debtor to retain personal property with a total value up to $7,500.
In civil lawsuits, when a debtor is sued for past due accounts the law of exemptions sets the maximum amount that can be protected from seizure by a creditor. It does not erase the debt owed and does not exempt the debtor’s wages; creditors may still recover additional monies owed through the debtor’s employer.
The effect of an exemption in bankruptcy is such that it allows a person to keep certain property or assets even after bankruptcy is filed. For example, these exemptions establish what property, and how much of it, a debtor in Chapter 7 may retain.
The law of exemption has taken on new significance in the state of Alabama. Wolfe, Jones, Wolfe, Hancock, Daniel & South, LLC is uniquely situated to assist creditor’s in issues dealing with this new law.
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