Unemployed Alabama Residents Contemplate Bankruptcy to Avoid Foreclosure

The COVID-19 pandemic has made life exceptionally difficult for people throughout the United States. Millions have been laid off with no prospect of reemployment in the foreseeable future. And while many states offer competitive unemployment benefits, others cap their weekly payouts at $300 or less. 

One state offering less than ideal unemployment benefits is Alabama. With a maximum payout of $275 per week, Alabama has one of the lowest unemployment benefits in the nation. The $600 weekly Federal Pandemic Unemployment Compensation (FPUC) benefit offered a temporary safety net for those left without a reliable source of income. 

However, now that the FPUC expired on the benefit week ending on July 25, unemployed Alabama residents are contemplating filing for bankruptcy, especially those facing foreclosure.

Can You Keep Your Home When Filing for Bankruptcy?

The drastic reduction in unemployment benefits has left many Alabama residents unable to make ends meet, let alone pay their mortgage bills in a timely manner. Although many creditors offer deferment options to those who have been negatively affected by COVID-19, others require mortgagors to pay at least a portion of their monthly payments. So what does this mean for Alabama mortgagors who can’t pay and are considering bankruptcy? 

Know Your Bankruptcy Options

The bankruptcy chapter you file under determines your options for keeping your home and avoiding foreclosure. Chapter 7, known as liquidation bankruptcy, wipes out your debts, but filers should expect to relinquish most of their possessions. Chapter 11, known as reorganization bankruptcy, allows filers to keep their possessions while paying a lower settlement amount to satisfy their debts. 

A common misconception involves the idea that Chapter 7 filers will have to relinquish their home. However, there are ways to avoid foreclosure with both chapters. Below are the details of each chapter and what filers can expect. 

Chapter 7 – Whether you’ll be allowed to keep your home and avoid foreclosure in Alabama boils down to how much equity you have in your property. If you have little to no equity, meaning the difference between the market value of the property minus what you owe on your mortgage loan, you may be able to have your property exempt and keep your home. However, you’ll likely be asked to make continuous and timely payments as part of the bankruptcy plan.

Chapter 13 – Chapter 13 filers in Alabama can keep their home and all other possessions. Because this type of bankruptcy reorganizes your debts, you’ll be required to pay a certain amount per month to satisfy your outstanding balances at a reduced amount. 

The decision to file for bankruptcy is not one to be taken lightly. There are many factors to consider, especially when determining which chapter to file under. If you have considered filing for bankruptcy, we can help you connect with an experienced Alabama bankruptcy attorney to ensure your interests are protected.