Bankruptcy exemptions protect the equity in your property from creditors and the bankruptcy court—preventing the equity from being used to pay your creditors. Equity is the value of property after you subtract the amount of any liens against the property from its fair market value.

The equity in your home is one such asset in bankruptcy. And bankruptcy exemptions—including the homestead exemption—allow you to protect the property you will need to maintain a home and employment after bankruptcy.

Bankruptcy exemption amounts vary by state, so the amount you will be able to protect will depend on where you live and the type of bankruptcy you file (Chapter 7 or Chapter 13).

In Alabama, bankruptcy exemptions play a crucial role in both Chapter 7 and Chapter 13 bankruptcy filings. The homestead exemption in Alabama allows individuals to exempt up to $16,450 of equity in their primary residence. This means that if the equity in your home does not exceed this amount, it is protected from being sold to pay creditors in a bankruptcy proceeding. For married couples filing jointly, this amount can be doubled. It's important to note that the exemption amount is subject to change and adjustments over time. Additionally, Alabama allows debtors to choose between state exemptions and federal bankruptcy exemptions, but they cannot mix and match between the two systems. The choice between state and federal exemptions can significantly impact the amount of equity and types of property that an individual can protect in bankruptcy. Debtors should consult with an attorney to determine the most advantageous exemption scheme for their particular situation and to ensure they are utilizing the exemptions to their fullest potential.