Alabama Bankruptcy Laws
Complete exemption laws which protect a debtor’s property when personal bankruptcy is filed in the state of Alabama.
§ 6-10-2 – Alabama Homestead exemption – Amount; area.
The homestead of every resident of this state, with the improvements and appurtenances, not exceeding in value $ 5,000 and in area 160 acres, shall be, to the extent of any interest he or she may have therein, whether a fee or less estate or whether held in common or in severalty, exempt from levy and sale under execution or other process for the collection of debts during his or her life and occupancy and, if he or she leaves surviving him or her a spouse and a minor child, or children, or either, during the life of the surviving spouse and minority of the child, or children, but the area of the homestead shall not be enlarged by reason of any encumbrance thereon or of the character of the estate or interest owned therein by him or her. When a husband and wife jointly own a homestead each is entitled to claim separately the exemption provided herein, to the same extent and value as an unmarried individual. For purposes of this section and §s 6-10-38 and 6-10-40, a mobile home or similar dwelling if the principal place of residence of the individual claiming the exemption shall be deemed to be a homestead.
§ 6-10-3 – Alabama Homestead exemption – Alienation by married person.
No mortgage, deed or other conveyance of the homestead by a married person shall be valid without the voluntary signature and assent of the husband or wife, which must be shown by his or her examination before an officer authorized by law to take acknowledgments of deeds, and the certificate of such officer upon, or attached to, such mortgage, deed, or other conveyance, which certificate must be substantially in the form of acknowledgment for individuals prescribed by § 35-4-29.
§ 6-10-4 – Alabama Homestead exemption – Liens not affected.
The provisions of this article shall not, however, be so construed as to prevent any lien attaching to the homestead in favor of any laborer, merchant, or materialman for work and labor done or for materials furnished, or in favor of any vendor for unpaid purchase money or so as to affect any deed, mortgage, or lien on such homestead, lawfully executed or created.
§ 6-10-5 – Burial place and church pew or seat.
In favor of any resident of this state, there shall also be exempt from levy and sale, under execution or other process, any lot or lots in cemeteries or elsewhere, set apart or used as a burial place for himself or herself or family and any pew or seat in any church or other place of worship, held and occupied by him or her for the use of himself or herself or family.
§ 6-10-6 – Personalty.
The personal property of such resident, except for wages, salaries, or other compensation, to the extent of the resident’s interest therein, to the amount of $3,000 in value, to be selected by him or her, and, in addition thereto, all necessary and proper wearing apparel for himself or herself and family, all family portraits or pictures and all books used in the family shall also be exempt from levy and sale under execution or other process for the collection of debts. No wages, salaries, or other compensation shall be exempt except as provided in § 5-19-15 or § 6-10-7.
§ 6-10-7 – Wages, salaries, or other compensation of laborers or employees for personal services.
(a) The wages, salaries, or other compensation of laborers or employees, residents of this state, for personal services, shall be exempt from levy under writs of garnishment or other process for the collection of debts contracted or judgments entered in tort in an amount equal to 75 percent of such wages, salaries, or other compensation due or to become due to such laborers or employees, and the levy as to such percentage of their wages, salaries, or other compensation shall be void. The court issuing the writ or levy shall show thereon the amount of the claim of the plaintiff and the court costs in the proceedings. If at any time during the pendency of the proceedings in the court a judgment is entered for a different amount, then the court shall notify the garnishee of the correct amount due by the defendant under the writ or levy. The garnishee shall retain 25 percent of the wages, salaries, or other compensation of the laborer or employee during the period of time as is necessary to accumulate a sum equal to the amount shown as due by the court on the writ or levy. Should the employment of the defendant for any reason be terminated with the garnishee, then the garnishee shall not later than 15 days after the termination of employment, report the termination to the court and pay into court all sums withheld from the defendant’s wages, salaries, or other compensation. If the plaintiff in garnishment contests the answer of the garnishee, as now provided by law in such cases, and proves to the court the deficiency or untruth of the garnishee’s answer, the court shall enter judgment against the garnishee for such amount as would have been subject to the order of condemnation had the sum not been released to the defendant.
(b) The garnishee shall, after a period of 30 days from the first retention of any sum from the defendant’s wages, salaries, or other compensation, commence paying the funds into court, as they are deducted or withheld and continue to do so on a monthly or more frequent basis until the full amount is withheld. Upon receipt by the court of a written request by the plaintiff, the court may enter an order of condemnation of said funds received and thereupon disburse the same to the plaintiff.
§ 6-10-8 – Rights of beneficiaries and assignees under life insurance policies.
If a policy of insurance, whether heretofore or hereafter issued, is effected by any person on his or her own life or on another life in favor of a person other than himself or herself or, except in cases of transfer with intent to defraud creditors, if a policy of life insurance is assigned or in any way made payable to any such person, the lawful beneficiary or assignee thereof, other than the insured or the person so effecting such insurance, or his or her executors or administrators, shall be entitled to its proceeds and avails against the creditors and representatives of the insured and of the person effecting the same, whether or not the right to change the beneficiary is reserved or permitted and whether or not the policy is made payable to the person whose life is insured if the beneficiary or assignee shall predecease such person; provided, that subject to the statute of limitations, the amount of any premiums for said insurance paid with intent to defraud creditors, with interest thereon, shall inure to their benefit from the proceeds of the policy; but the company issuing the policy shall be discharged of all liability thereon by payment of its proceeds in accordance with its terms unless, before such payment, the company shall have written notice, by or in behalf of a creditor, of a claim to recover for transfer made or premiums paid with intent to defraud creditors, with specifications of the amount claimed. A husband or a wife, in his or her own name or in the name of a trustee, may insure the life of his or her spouse for the benefit of himself or herself, or for the benefit of himself or herself and any child or children of the marriage; or a husband or a wife may insure his or her own life for the benefit of his or her spouse, or for the benefit of his or her spouse and children, or for the benefit of their children, either in the names of such children or in the name of a trustee; and such insurance and the proceeds and avails thereof, whether or not the right to change the beneficiary is reserved or permitted, is exempt from liability for the debts or engagements of the insured, or for the torts of the insured, or for any penalty or damages recoverable of the insured.
§ 6-10-9 – Partnership property.
No property, real or personal, held or owned by partners as partnership property or purchased with partnership funds for partnership purposes shall be the subject of homestead or other exemption as against copartners or partnership creditors.
§ 6-10-10 – County and municipal property.
All property, real or personal, belonging to the several counties or municipal corporations in this state and used for county or municipal purposes shall be exempt from levy and sale under any process or judgment whatsoever.
” 6-10-11 – Exemptions in federal bankruptcy.
In cases instituted under the provisions of Title 11 of the United States Code entitled “Bankruptcy,” there shall be exempt from the property of the estate of an individual debtor only that property and income which is exempt under the laws of the State of Alabama and under federal laws other than Subsection (d) of § 522 of said Title 11 of the United States Code.
§ 5-19-15 – Garnishment.
Prior to entry of judgment on a consumer credit transaction, the creditor may not attach unpaid earnings of the debtor by garnishment. Notwithstanding the garnishment procedure otherwise applicable after judgment, with respect to a consumer credit transaction, the amount of unpaid earnings of the debtor subject to garnishment shall not exceed the lesser of:
(1) Twenty-five percent of the debtor’s disposable earnings for that week; or (2) The amount by which the debtor’s disposable earnings for that week exceed 30 times the federal minimum hourly wage in effect when payable.
“Disposable earnings” means that part of the earnings of a debtor remaining after deduction of amounts required by law to be withheld, and disposable earnings shall not include periodic payments pursuant to a pension, retirement, or disability program.
§ 12-18-10 – Retirement and disability benefits of justices of Supreme Court, judges of courts of appeals and judges of circuit courts; payment of benefits to spouses upon death of justices or judges; call to active duty status of retired justices or judges; powers, duties, compensation, etc., of retired justices or judges on active duty status; transfer of justices or judges from active to inactive status, etc.
(a) The retirement benefit payable to a justice of the Supreme Court or judge of one of the courts of appeals retiring pursuant to subdivision (2), (3), (4) or (5) of subsection (a) of § 12-18-6 shall be 75 percent of the salary prescribed by law for the position from which he retires, payable monthly for the rest of his life. Such benefit shall continue to be 75 percent of his salary prescribed by law for such position and shall change in amount as such salary is hereafter increased or decreased by law and shall not be subject to writs of attachment or garnishment. (b) The retirement benefit payable to a judge of a circuit court retiring pursuant to subdivision (2), (3), (4) or (5) of subsection (b) of § 12-18-6 shall be 75 percent of the salary prescribed by law of the salary payable from the State Treasury to circuit judges. Such retirement benefits shall be payable monthly for the life of the beneficiary and shall continue to be 75 percent of the salary then prescribed by law for the respective position and shall change in amount as such salary is hereafter increased or decreased by law and shall not be subject to writs of attachment or garnishment.
§ 15-23-15 – Amount and method of compensation; future economic loss generally; exemption from state and local taxes, etc. (Crime victims’ compensation)
(a) Compensation for work loss, replacement services loss, dependent’s economic loss, and dependent’s replacement services loss may not exceed four hundred dollars ($400) per week.
(b) Compensation payable to a victim and to all other claimants sustaining economic loss because of injury to or death of that victim may not exceed fifteen thousand dollars ($15,000) in the aggregate.
(c) The commission may provide for the payment to a claimant in a lump sum or in installments. At the request of the claimant, the commission may convert future economic loss, other than allowable expense, to a lump sum, but only upon a finding by the commission of either of the following:
(1) That the award in a lump sum will promote the interests of the claimant; or
(2) That the present value of all future economic loss, other than allowable expense, does not exceed five thousand dollars ($5,000).
(d) An award payable in installments for future economic loss may be made only for a period as to which the commission can reasonably determine future economic loss. An award payable in installments for future economic loss may be modified by the commission upon its findings that a material and substantial change of circumstances has occurred.
(e) An award shall not be subject to state or municipal taxation or to execution, attachment, or garnishment, except as the same may pertain to an obligation for the support of dependent children or as the same may pertain to a creditor which has provided products, services, or accommodations, the costs of which are included in the award.
(f) An assignment by the claimant to any future award under the provisions of this article is unenforceable, except any of the following assignments:
(1) An assignment of any award for work loss to assure payment of court-ordered child support.
(2) An assignment of any award for an allowable expense to the extent that the benefits are for the cost of products, services, or accommodations necessitated by the injury or death on which the claim is based and are provided or to be provided by the assignee.
§ (16-25-23 – Exemptions from execution. (Teachers’ pensions)
The right of a person to a pension; an annuity, or a retirement allowance; to the return of contributions; the pension, annuity or retirement allowance itself; any optional benefit or any other right accrued or accruing to any person under the provisions of this chapter; and the moneys in the various funds created by this chapter are hereby exempt from any state or municipal tax and exempt from levy and sale, garnishment, attachment or any other process whatsoever, and shall be unassignable except as in this chapter specifically otherwise provided.
§ 19-3B-501 – Rights of beneficiary’s creditor or assignee. (Spendthrift trusts)
To the extent a beneficiary’s interest is not subject to a spendthrift provision, the court may authorize a creditor or assignee of the beneficiary to reach the beneficiary’s interest by attachment of present or future distributions to or for the benefit of the beneficiary or other means. The court may limit the award to such relief as is appropriate under the circumstances.
§ 19-3B-502 – Spendthrift provision.
(a) A spendthrift provision is valid only if it restrains both voluntary and involuntary transfer of a beneficiary’s interest.
(b) A term of a trust providing that the interest of a beneficiary is held subject to a “spendthrift trust,” or words of similar import, is sufficient to restrain both voluntary and involuntary transfer of the beneficiary’s interest.
(c) A beneficiary may not transfer an interest in a trust in violation of a valid spendthrift provision and, except as otherwise provided in this article, a creditor or assignee of the beneficiary may not reach the interest or a distribution by the trustee before its receipt by the beneficiary.
§ 19-3B-503 – Exceptions to spendthrift provision.
(a) In this section, “child” includes any person for whom an order or judgment for child support has been entered in this or another state.
(b) A spendthrift provision is unenforceable against:
(1) a beneficiary’s child, spouse, or former spouse who has a judgment or court order against the beneficiary for support or maintenance;
(2) a judgment creditor who has provided services for the protection of a beneficiary’s interest in the trust; and
(3) a claim of this state or the United States to the extent a statute of this state or federal law so provides.
(c) A claimant against whom a spendthrift provision cannot be enforced may obtain from a court an order attaching present or future distributions to or for the benefit of the beneficiary. The court may limit the award to such relief as is appropriate under the circumstances.
§ 19-3B-508 – Qualified trusts under the Internal Revenue Code.
(a) Any benefits provided under a plan which includes a trust that constitutes a “qualified trust” may not be assigned or alienated, voluntarily or involuntarily, and shall be exempt from the operation of any bankruptcy or insolvency laws under 11 U.S.C. § 522(b), as from time to time amended. This subsection may not be waived by a participant or beneficiary of any qualified plan.
(b) The securing of a loan made to a participant or beneficiary of such a plan shall not be treated as an assignment or alienation under subsection (a) if such loan is secured by the participant’s accrued nonforfeitable benefit under the plan and is exempt from the tax imposed by § 4975 of the code by reason of § 4975(d)(1) of the code.
(c) Subsection (a) shall apply to the creation, assignment, or recognition of a right to any benefit payable with respect to a participant pursuant to a domestic relations order, as such term is defined in § 414(p) of the code, except that subsection (a) shall not apply if the order is determined to be a “qualified domestic relations order” in accordance with § 414(p) of the code. However, no domestic relations order shall be deemed a qualified domestic relations order except in accordance with the procedures for such determination set forth in § 414(p) and the related provisions of the Employee Retirement Income Security Act of 1974, as from time to time amended.
(d) The provisions of this section shall be interpreted so as to provide restrictions on alienation and assignment to the extent, and only to the extent, the same are required for a trust within the definition of “qualified trust” herein to be a “qualified trust” under the applicable provisions of the code, notwithstanding any attempted assignment or alienation in violation of § 401(a) or other applicable provisions of the code. It is intended that this section will constitute “a restriction of the transfer of a beneficial interest of the debtor in a trust that is enforceable under applicable nonbankruptcy law” for purposes of § 541(c)(2) of the Federal Bankruptcy Code, 11 U.S.C. § 541(c)(2), as from time to time amended. This section shall further be construed as a “state spendthrift trust law.” It is further intended for this section to provide an exemption from creditors’ claims within 11 U.S.C. § 522.
§ 125-4-140 – Certain assignments, etc., of right to benefits void; exemption from attachment, etc.; exception. (Unemployment compensation)
Any assignment, pledge, or encumbrance of any right to benefits which are or may become due or payable under this chapter, except as is provided by this chapter, shall be void, and such rights to benefits shall be exempt from levy, execution, attachment, or any other remedy whatsoever provided for the collection of debts. Any waiver of any exemption herein provided, unless expressly permitted by this section, shall be void.
§ 25-5-86 – Remedy for default upon periodic compensation payments; exemption of compensation claims, etc., from garnishment, etc. (Workers’ compensation)
For purposes of this article and Article 4 of this chapter:
(1) If the award, order, or settlement agreement is payable in installments and default has been made in the payment of an installment, the owner or interested party may, upon the expiration of 30 days from the default and upon five days’ notice to the defaulting employer or defendant, move for a modification of the award or settlement agreement by ascertaining the present value of the case, including the 15 percent penalty provision of § 25-5-59, under the rule of computation contained in § 25-5-85, and upon which execution may issue. The defaulting employer may relieve itself of the execution by entering into a good and sufficient bond, to be approved by the judge, securing the payment of all future installments, and forthwith paying all past due installments with interest and penalty thereon since due. The bond shall be recorded upon the minutes of the court.
(2) Claims for compensation, awards, judgments, or agreements to pay compensation owned by an injured employee or his or her dependent shall not be assignable and shall be exempt from seizure or sale or garnishment for the payment of any debt or liability.
§ 27-14-29 – Rights of beneficiaries, etc., under life insurance policies against creditors, etc.
(a) If a policy of insurance, whether heretofore or hereafter issued, is effected by any person on his own life or on another life in favor of a person other than himself or, except in cases of transfer with intent to defraud creditors, if a policy of life insurance is assigned or in any way made payable to any such person, the lawful beneficiary, or assignee thereof, other than the insured or the person so effecting such insurance or his executors or administrators, shall be entitled to its proceeds and avails against the creditors, personal representatives, trustees in bankruptcy, and receivers in state and federal courts of the person insured and of the person effecting the insurance, whether or not the right to change the beneficiary is reserved or permitted and whether or not the policy is made payable to the person whose life is insured, if the beneficiary or assignee shall predecease such person; provided, however, that, subject to the statute of limitations, the amount of any premiums for the insurance paid with intent to defraud creditors, with interest thereon, shall inure to their benefit from the proceeds of the policy; but the insurer issuing the policy shall be discharged of all liability thereon by payment of its proceeds in accordance with its terms, unless before such payment the insurer shall have written notice, by or in behalf of a creditor, of a claim to recover for transfer made or premiums paid with intent to defraud creditors, with specifications of the amount claimed.
(b) If a policy of insurance, whether heretofore or hereafter issued, is effected by any person on the life of another in favor of the person effecting the same or, except in cases of transfer with intent to defraud creditors, is made payable by assignment, change of beneficiary or otherwise to any such person, the latter shall be entitled to the proceeds and avails of the policy as against the creditors, personal representatives, trustees in bankruptcy and receivers in state and federal courts of the person insured. If the person effecting such insurance, or the assignee of such insurance, is the wife of the insured, she shall also be entitled to the proceeds and avails of the policy as against her own creditors, personal representatives, trustees in bankruptcy, and receivers in state and federal courts.
(c) “Proceeds and avails,” as used in this section, means death benefits, cash surrender and loan values, premiums waived, and dividends, whether used in reduction of premiums or otherwise, excepting only where the debtor, subsequent to issuance of the policy, has actually elected to receive the dividends in cash.
(d) For the purposes of subsection (a) of this section, a policy shall also be deemed to be payable to a person other than the insured if, and to the extent that, a facility-of-payment clause, or similar clause, in the policy permits the insurer to discharge its obligations after the death of the individual insured by paying the death benefits to a person as permitted by such clause. .
§ 27-14-31 – Exemption from debt of proceeds – Disability.
The proceeds or avails of all contracts or disability insurance and of provisions providing benefits on account of the insured’s disability which are supplemental to life insurance or annuity contracts, heretofore or hereafter effected, shall be exempt from all liability for any debt of the insured and from any debt of the beneficiary existing at the time the proceeds are made available for his use. The exemption of income benefits payable as the result of disability shall not exceed an average of $250.00 of such benefits per month of the period of disability.
§ 27-14-32 – Exemption from debt of proceeds – Annuity contracts.
(a) The benefits, rights, privileges, and options which under any annuity contract, heretofore or hereafter issued, are due or prospectively due the annuitant shall not be subject to execution, nor shall the annuitant be compelled to exercise any such rights, powers, or options, nor shall creditors be allowed to interfere with or terminate the contract, except:
(1) As to amounts paid for or as premium on any such annuity with intent to defraud creditors, with interest thereon, and of which the creditor has given the insurer written notice at its home office prior to the making of the payments to the annuitant out of which the creditor seeks to recover. Any such notice shall specify the amount claimed, or such facts as will enable the insurer to ascertain such amount, and shall set forth such facts as will enable the insurer to ascertain the insurance or annuity contract, the person insured or annuitant and the payments sought to be avoided on the ground of fraud;
(2) The total exemption of benefits presently due and payable to any annuitant periodically or at stated times under all annuity contracts under which he is an annuitant shall not at any time exceed $250.00 per month for the length of time represented by such installments, and such periodic payments in excess of $250.00 per month shall be subject to garnishment;
(3) If the total benefits presently due and payable to any annuitant under all annuity contracts under which he is an annuitant shall at any time exceed payment at the rate of $250.00 per month, then the court may order such annuitant to pay to a judgment creditor or apply on the judgment, in installments, such portion of such excess benefits as to the court may appear just and proper, after due regard for the reasonable requirements of the judgment debtor and his family, if dependent upon him, as well as any payments required to be made by the annuitant to other creditors under prior court orders.
(b) If the contract so provides, the benefits, rights, privileges, or options accruing under such contract to a beneficiary or assignee shall not be transferable nor subject to commutation, and if the benefits are payable periodically or at stated times, the same exemptions and exceptions contained in this section for the annuitant shall apply with respect to such beneficiary or assignee.
§ 27-15-26 – Power of life insurer to hold proceeds of policy.
Any life insurer shall have the power to hold under agreement the proceeds of any policy issued by it upon such terms and restrictions as to revocation by the policyholder and control by beneficiaries and with such exemptions from the claims of creditors of beneficiaries other than the policyholder as set forth in the policy or as agreed to in writing by the insurer and the policyholder. Upon maturity of a policy, in the event the policyholder has made no such agreement, the insurer shall have the power to hold the proceeds of the policy under an agreement with the beneficiaries. The insurer shall not be required to segregate the funds so held but may hold them as part of its general assets.
§ 27-30-25 – Exemption of resident members’, etc., interest from process.
The interest of resident members and policyholders of mutual aid associations therein, and of resident beneficiaries provided for thereby, is exempt from all process for the collection of debts or the enforcement of liabilities.
§ 27-34-27 – Exemption of benefits, etc., from attachment, garnishment, or other process.
No money or other benefit, charity, relief, or aid to be paid, provided, or rendered by any society shall be liable to attachment, garnishment or other process or to be seized, taken, appropriated or applied by any legal or equitable process or operation of law to pay any debt or liability of a member or beneficiary, or any other person who may have a right thereunder, either before or after payment by the society.
§ 31-2-78 – Personal uniforms, arms, etc., of officers, enlisted men, etc., exempt from sale under execution, etc.
The personally owned uniforms, arms and equipment, required by laws or regulations of every commissioned, warrant and noncommissioned officer, musician and enlisted man of the armed forces of the state, shall be exempt from sale under any execution or other process for debt or taxes.
§ 31-7-2 – Assignment, attachment, etc., prohibited; bonus not subject to state taxation. (Southeast Asian War POWs’ benefits)
No assignment or pledge as security for a loan or any right or claim to the bonus under this chapter shall be valid. No sum payable under this chapter to a veteran shall be subject to attachment, levy or seizure under any legal or equitable process, or be subject to taxation, either as income or otherwise, by the State of Alabama.
§ 36-21-77 – Benefits, annuities, etc., not subject to attachment, garnishment, assignment, etc.; annuities and benefits to be paid directly to member or beneficiary. (Law enforcement officers)
None of the moneys referred to in this article or any benefit or annuity payable under this article shall be subject to attachment, garnishment or judgment entered against any member or any beneficiary entitled to receive the same nor shall any such be assignable. All payments of such annuities and benefits shall be paid directly to the member or to the beneficiary provided for in this article.
§ 36-27-28 – Exemption from taxation, attachment, etc., of pension, annuity, etc. (State employees)
The right of a person to a pension, an annuity, a retirement allowance or to the return of contributions, the pension, annuity or retirement allowance itself and any optional benefit or any other right accrued or accruing to any person under the provisions of this article and the moneys in the various funds created by this chapter are hereby exempt from any state or municipal tax and exempt from levy and sale, garnishment, attachment or any other process whatsoever and shall be unassignable except as in this article specifically otherwise provided.
§ 38-4-8 – Assistance grants exempt from taxes, levy, garnishment, or other process, and inalienable; bankruptcy.
All amounts paid or payable as public assistance to needy persons shall be exempt from any tax levied by the state or any subdivision thereof and shall be exempt from levy, garnishment, attachment or any other process whatsoever and shall be inalienable, and in the case of bankruptcy, shall not pass to the trustee or other person acting on behalf of the creditors of the recipient of public assistance.
Note: While this reference information is current as of August 2010, it may not reflect the most up-to-date exemption figures on official state of Alabama bankruptcy court statutes.