Alabamians could shield more of their home’s value from creditors under a bill that the Senate’s General Fund budget committee approved 7-0 Wednesday. SB 427, sponsored by Sen. Cam Ward, R-Alabaster, awaits consideration by the full Senate.

Ward’s bill would allow individuals to protect up to $30,000 of their home’s value from creditors. The exemption for married couples would be up to $60,000. Current Alabama law sets that homestead exemption at just $5,000 for individuals and $10,000 for couples. Those amounts are among the weakest debtor protections in the nation and are so low as to prove virtually useless in shielding most homes from foreclosure in a debt collection case.

Most states have far higher exemptions. Some, including Florida and Texas, do not limit how much of a home’s value can be protected from creditors. Ward’s bill would update Alabama’s exemptions for the first time in more than 30 years and give debtors a better chance to rebuild after a financial judgment is entered against them.

SB 427 also would allow debtors in bankruptcy cases to choose to exempt homesteads and personal property in accordance with federal bankruptcy law. The bill originally would have increased debtors’ state exemptions for personal property as well, but the committee removed those provisions.

The new version also does not include a cost-of-living adjustment. That means the Legislature would have to raise the limit again in the future to prevent inflation from eroding the homestead protection’s value. “I think it’s something that this body should vote on, instead of some sort of artificial index number,” Ward said.

Time is getting shorter for the bill to win Senate approval. Lawmakers will return Thursday for the 24th of 30 allowable meeting days during the 2014 regular session, which is expected to last until early April.

By Stephen Stetson, policy analyst. Posted March 12, 2014.