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Ohio Chapter 7 Bankruptcy: What Happens to My Property?

If you are considering bankruptcy, you have probably found yourself wondering exactly what, if any, property you own can be taken to pay your creditors. In a bankruptcy case, your property is held in an estate that is managed by a trustee. Theoretically, the trustee is the person responsible for selling off your property and using the money to pay your debts. However, most people who file for Chapter 7 find that they keep all of their property because it is exempt. Exempt property is anything you own that the trustee cannot sell to satisfy your obligations. In other words, when an exemption applies, you get to keep your stuff.

How Bankruptcy Works in Ohio

When you file for bankruptcy in Ohio, you must use the Ohio bankruptcy laws to protect your stuff. All states have their own bankruptcy systems, but some will also allow you to choose the federal system. In Ohio, you do not have that option (it doesn’t make much of a difference because Ohio laws are more favorable to consumers).

If you file for Chapter 7 bankruptcy, a trustee will assess the value of all of your property, and will determine what things are exempt. Then, the trustee will sell all of your non-exempt property (this happens rarely), and give the money to your creditors. After your nonexempt property has been sold, and your creditors have received the proceeds, all remaining debts are then forgiven or discharged.

If you file for Chapter 13 bankruptcy, your lawyer will help you work out a payment plan with your creditors. In this form of bankruptcy, exempt property helps the trustee determine exactly how much you can afford to pay your creditors. Rather than liquidating nonexempt property like in a chapter 7, debtors keep their property in chapter 13 but pay the nonexempt amount as part of their monthly payment.

See also: Can I qualify for chapter 7 bankruptcy?

Therefore, regardless of whether you file for Chapter 7 or Chapter 13 bankruptcy, you will need to understand exactly what things you own are protected. In order to thoroughly understand your bankruptcy case and provide yourself the best protection possible, you should consider speaking with a bankruptcy attorney.

Bankruptcy Exemptions in Ohio

Listed below are some of the most common bankruptcy exemptions utilized in Ohio.  If you are married, then you should know that married couples are allowed to “double.” Doubling means that each of the amounts listed below can be applied up to its maximum for the property each spouse. For example, you and your spouse may each exempt your own car up to the full exemption amount.

These amounts refer to the equity value of the asset. The equity value is the amount that the piece of property is worth in liquidation. The “liquidation value” of an asset is the amount that the asset is worth after any liens on the asset are subtracted. For example, if a home worth $100,000 has a $25,000 lien on it, then the home’s liquidation value is $75,000.

1. Homestead Exemption: Up to $125,000 of equity in your home is exempt
2. Motor Vehicle: Up to $3,675 of value in a motor vehicle is exempt
3. Cash: Up to $450 of cash that you currently have is exempt.
4. Household Goods: Up to $575 of value in any household item is exempt, for a maximum of $12,250 total value of household goods. This means multiple items can be protected up to $575 a piece, but the total after adding up those items cannot exceed $12,250.
5. Jewelry: Up to $1,550 total value for jewelry is exempt. This means $1,550 for ALL of your jewelry, not per item.
6. Tools of Trade: Up to $2,325 is exempt. The “tools of the trade exemption” refers to property that is used for a person’s profession or business.
7. Life Insurance: The full amount of your life insurance policy is exempt
8. Burial Plot: The full amount of your burial plot is exempt.
9. Workers’ Compensation: Workers’ compensation benefits are exempt.
10. Unemployment Benefits: Unemployment benefits are exempt.
11. Retirement Plan: Almost all forms of retirement plans are exempt up to their full amount.

What Else Should I Know?

Again, these are only the most common exemptions that apply in a bankruptcy case. However, every situation is different, and you need to understand the aspects of your unique case.  Bankruptcy is a difficult, and often frustrating process, especially if you are inexperienced in this area. Therefore, you should consider speaking with an experienced bankruptcy attorney before filing your case, selling any of your property, or attempting to negotiate with your creditors.

See also: Bankruptcy in Ohio: What You Need to Know

Homestead exemptions have been enacted in most states to protect homeowners from their creditors. Outside of bankruptcy, a homestead exemption protects your primary residence from judgment creditors. Inside the bankruptcy process, the homestead exemption prevents the trustee from selling your home to satisfy creditor claims. The basic idea behind the homestead exemption, and exemptions in general, is that creditors shouldn’t be able to take everything you have, your home being no exception.

Ohio’s Homestead Exemption Just Got A Lot Bigger!

As of March 27, the Ohio homestead exemption is now $125,000, which represents a 500% increase from the previous homestead number of $21,625. Married couples filing a joint bankruptcy case can double the exemption to protect up to $250,000 of home equity in a primary residence.

How It Works

The homestead exemption applies to equity, not overall real estate value. You can calculate home equity by subtracting any outstanding mortgage balances from the appraised value of your home. Need an example?

Let’s say you and your wife live in Dayton and jointly owe a judgment creditor $1,000,000. You own a home also worth $1,000,000 that has a mortgage lien of $850,000. Your home equity is $150,000. Due to the judgment as well as other debts, you and your wife file for chapter 7 bankruptcy.

In the example above, you’ll be able to file bankruptcy, shed all of your unsecured debts, and still keep your home.

Why? How?

Because Ohio’s new homestead exemption allows married couples to protect up to $250,000 of equity in a primary residence. With only $150,000 of equity in the example above, you’re in the clear despite the fact that your house has an appraised value of $1,000,000.

What Happens if the Cards Fall the Other Way?

For the sake of discussion, let’s say your home equity was $500,000 instead of $150,000. What then?

Well, in this example, the trustee would sell the home, but you and your wife would be entitled to the amount of your exemption. After the home was sold, you’d be receive a check for $250,000. The rest would go to your creditors.

What Happens if it’s a Close Call

Let’s change the facts again and say that your home in Dayton has $257,000 of appraised equity, putting you only $7,000 over the limit. Do you lose the home?

Absolutely not.

Trustees don’t want to sell your home. It causes them to incur costs and takes valuable time and money. In cases where equity barely peeks out over the exemption limit, it is almost always possible to negotiate a cash settlement with the trustee and keep your home.

A Word About Investment Property

It is important to understand that the Ohio homestead exemption applies only to primary residences, investment property is not protected. The facts of each case matter, but a primary residence can usually be defined as a home that you live in everyday. The place where your groceries are kept, where you put the kids to bed, where the paper is delivered. You get the idea. The house at the lake that you visit every other weekend is not your primary residence.

If you’re unsure as to the status of your real estate under the law, consult a lawyer.

See also: What Property Can I Keep in Chapter 7?, Can I Keep My House and Car if I File for Bankruptcy?