Issuu on Google+

OHIO BANKRUPTCY – EXEMPTIONS AND HOW THEY CAN HELP YOU A Look At Ohio Bankruptcy Exemptions and How It Can Help You Retain the Majority of Your Assets When You File for Bankruptcy

SCOTT R. NEEDLEMAN BANKRUPTCY AND FORECLOSURE DEFENSE ATTORNEY


Each year, millions of hard-working individuals find themselves facing financial difficulties that appear to have no solution. Due in large part to the recession the United States recently experienced the number of people who are struggling financially has increased dramatically. As a result, the number of bankruptcy petitions filed across the country has reached record highs. The decision to seek protection by filing for bankruptcy is never an easy decision to make; however, it is often the best solution. One of the most common reasons why people are hesitant to file bankruptcy is the fear that filing for bankruptcy means losing assets-assets that have taken a lifetime of hard work to acquire. While this fear is certainly understandable, it is largely unfounded. Most debtors are able to keep their home, vehicle, and a variety of other assets when they file for bankruptcy by utilizing the Ohio bankruptcy exemptions.

BANKRUPTCY BASICS – CHOOSING A CHAPTER To understand how the Ohio bankruptcy exemptions fit into the overall bankruptcy process you first need a basic understanding of bankruptcy.

Ohio Bankruptcy – Exemptions and How They Can Help You  thecolumbusbankruptcylawyer.com

2


The U.S. Bankruptcy Code allows an individual debtor to file for bankruptcy protection under chapter 7, 11, 12, or 13. Although Chapter 11 can be used by an individual it is more commonly utilized by a small business. Chapter 12 is limited to those who qualify as a family fisherman or family farmer. Therefore, most debtors file under either chapter 7 or chapter 13 when they file bankruptcy. A debtor must qualify under what is referred to as the "means test" in order to file a chapter 7 bankruptcy. The means test requires a debtor to perform a series of calculations aimed at determining whether the debtor's income is at or below the median income for similarly situated households in Ohio. If the debtor does not qualify under the means test then a chapter 13 must be used. A debtor may also choose to file a chapter 13 even if he or she qualifies to file a chapter 7. A chapter 7 bankruptcy is often referred to as a "liquidation" bankruptcy" while a chapter 13 is known as a "wage earners" bankruptcy. The names are both somewhat deceiving. In a chapter 7 bankruptcy a debtor's nonexempt assets are subject to be confiscated by the bankruptcy trustee, liquidated, and the proceeds used to pay creditors; however, in reality most chapter 7 debtors are able to use the applicable exemptions to protect most, or even all, of their assets. A debtor whose income is too high to qualify under the chapter 7 means test, or who has valuable assets

Ohio Bankruptcy – Exemptions and How They Can Help You ď Ź thecolumbusbankruptcylawyer.com

3


that are not exempt, will need to file a chapter 13 bankruptcy. In a chapter 13 bankruptcy the debtor is required to develop a repayment plan that allows the debtor to repay most of his or her debts over an extended period of time, typically three to five years.

WHAT ARE EXEMPTIONS? Exemptions are what allow a debtor to retain property and other assets during the bankruptcy process. If an asset is exempt that essentially means that it is out of reach of the court or trustee and cannot be used, or sold, to repay any of the debtor’s debts. In addition, if you are married and file a joint petition with your spouse you are entitled to double your exemptions allowing you to protect more assets.

FEDERAL VS. STATE EXEMPTIONS Thankfully, the bankruptcy laws in the United States do not require a debtor to forfeit everything the debtor owns in order to take advantage of the protection offered by filing for bankruptcy. On the contrary, exemptions are built-in at the federal level and in many cases at the state level as well. The ability to file for bankruptcy protection is found in federal statutes in the United States, meaning that the federal court system has jurisdiction over bankruptcy proceedings in the U.S. This also means that with few exceptions the process and procedures for a debtor filing bankruptcy in one state are the same as a debtor filing in another state. The most prominent exception to that general rule relates to exemptions.

Ohio Bankruptcy – Exemptions and How They Can Help You  thecolumbusbankruptcylawyer.com

4


The U.S. Bankruptcy Code includes exemptions that a debtor may be able to use; however, the individual states are also allowed to create their own set of exemptions. The state in which a debtor is considered a resident at the time the bankruptcy petition is filed will determine which set of exemptions the debtor is allowed to use. Some states require a debtor to use the federal exemptions while other states require a debtor to use the state exemptions. Still other states allow a debtor to choose either the federal or state exemptions but a debtor cannot mix the two. In Ohio a debtor is required to use the state exemptions, meaning the federal exemptions are not an option for a debtor filing bankruptcy in Ohio.

OHIO EXEMPTIONS The list of exemptions to which you are entitled if you file bankruptcy in Ohio is lengthy; however, there are some commonly used exemptions that provide you with an idea of how much you can protect when you file for bankruptcy. Homestead – $132,900 Vehicle – $3,675 in one motor vehicle Household Goods – $12,250 total and up to $575 in a single item Cash – $450 Wages – 75 percent of wages Retirement/Pensions – IRAS and Roth IRAs to $1,171,150 plus private pension and tax-exempt retirement accounts Benefits – unemployment and workers’ compensation benefits Wildcard -- $1,225 in any asset not covered elsewhere

Ohio Bankruptcy – Exemptions and How They Can Help You  thecolumbusbankruptcylawyer.com

5


As you should be able to see the average debtor is able to exempt a significant amount of assets. Remember as well that if you are filing a joint petition with a spouse the exemption amounts are doubled.

EXEMPTIONS AND SECURED DEBTS As a debtor it is important that you understand how an exemption operates if it is being used to protect a secured debt. And exemption can protect an asset from being sold to repay creditors during the bankruptcy process; however, an exemption does not release a debtor from liability for the debt. By way of example, let's assume that you own your home that was purchased by taking out a mortgage loan. The lender from whom you borrowed the money to purchase the home is considered a secured creditor because the home is considered collateral, or security, for the loan. Let's further assume that the current market value of your home is $200,000 and that the balance owed on your mortgage loan is $150,000. You have $50,000 of equity in your home, all of which can be protected by using the Ohio Homestead exemption when you file for bankruptcy. The Homestead exemption operates to protect your home from the trustee selling the home and using the equity you have built up in the home to repay creditors. You still, however, owe the lender $150,000 on the

Ohio Bankruptcy – Exemptions and How They Can Help You ď Ź thecolumbusbankruptcylawyer.com

6


mortgage loan. To keep your home you will need to enter into a reaffirmation agreement with your lender during the bankruptcy process. With a better understanding of how the Ohio bankruptcy exemptions operate you should find that many of your fears regarding the bankruptcy process have disappeared. Although each debtor’s situation is unique, and only an experienced Ohio bankruptcy attorney can provide you with specific advice, it should be clear that most debtors are able to retain the majority of their property while still addressing their financial crisis by filing for bankruptcy protection. Ohio State Bar Association, Ohio Law Allows Property Exemptions in Bankruptcy NOLO, Ohio Bankruptcy Exemptions U.S. Courts, Bankruptcy Basics

Ohio Bankruptcy – Exemptions and How They Can Help You  thecolumbusbankruptcylawyer.com

7


About the Author Scott R. Needleman The Needleman Law Office 5300 E. Main, Suite 109 Columbus, OH 43213 614-575-1188 http://thecolumbusbankruptcylawyer.com/

Every associate at The Needleman Law Office is committed to handling your case in both a personal fashion and in a professional manner. In other words, we treat you the way we would want to be treated. We will take a personal interest in your situation, making sure you understand exactly what is happening and what options you may have. Then we’ll fight to ensure the best possible outcome for your situation.

Ohio Bankruptcy – Exemptions and How They Can Help You  thecolumbusbankruptcylawyer.com

8


Ohio Bankruptcy - Exemptions and How They Can Help You