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Bankruptcy

What You Need To Know

Filing bankruptcy immediately brings foreclosure proceedings to a halt.  Whether it can permanently save your home is another question.  When considering this alternative, it is important to know what bankruptcy can and cannot do and how your individual situation fits into the potential outcomes of filing a chapter 7 or 13.  Below is some general information about bankruptcy and there are two other pages that go into detail on avoiding foreclosure through a chapter 7 and chapter 13.

 
  • What is Bankruptcy? 

    “Bankrupt” means filing a petition in federal bankruptcy court asking for protection from those to whom you owe money, the creditors.  A single petition may cover an individual or married couple.  The instant you, the debtor, file for bankruptcy, the court takes legal control of your assets and stops all debt collection efforts. 

    Shortly after the filing, a court-appointed trustee convenes a meeting to inventory your assets and debts and determine which assets are exempt from seizure.  Ohio law (Ohio Revised Code § 2329.662 and 2329.66) regulates these exemptions, which include in part: pensions, clothes, household goods, and some equity in a home. 

    At the conclusion of the bankruptcy, you are freed from most debts, but taxes, student loans, alimony, and child support remain payable in full, and you must make payments on all secured loans (such as home mortgages and car loans) or forfeit the collateral (the house and the car).  Two chapters of the bankruptcy section of the U.S. Code, regulate individuals filing bankruptcy:  chapter 7, liquidation, 38,553 cases filed in Ohio in calendar year 2012 and chapter 13, reorganization, 11,992 cases filed in the same period.


  • What Is A Chapter 7 Liquidation?
     

    When you file under chapter 7, the bankruptcy trustee collects your non-exempt property, sells it and distributes the proceeds to your creditors.  Your remaining debt is discharged, allowing you to have a fresh start, debt free.

  • What Is A Chapter 13 Reorganization?

    A chapter 13 filing allows you to create a plan to use future earnings to pay off debt.  The repayment plan is between 3 and 5 years and may not pay 100% of your debt.  But chapter 13 debtors retain their property so long as they stay current with their repayments, and at the end of the plan, they are released from all dischargeable debts.

  • The Chapter 7 "Means Test"
     
    The biggest change in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) was the creation of a “means test” formula (similar to a tax return) to identify debtors who are presumed ineligible for a chapter 7 discharge.  However, debtors can skip the test and proceed with a chapter 7 if their current monthly income, multiplied by 12, is equal to or less than Ohio’s highest median family income. 

     Household    Annual     Monthly (11/1/2012)
       1 person:      $40,091     $3,341
       2 person:      $50,491     $4,208
       3 person:      $59,275     $4,940
       4 person:      $71,453     $5,955

    About 90% of chapter 7 filings are not affected by the means test.  But those with income above Ohio’s highest median income who fail the means test, must file a five year chapter 13 plan to repay creditors, rather than a chapter 7.


  • I Filed Bankruptcy - Am I Still Eligible For Ohio's Save The Dream Program?

    Bankruptcy will not affect your eligibility for Save The Dream Ohio provided that your bankruptcy case is not still active and provided that you reaffirmed your mortgage debt as part of the bankruptcy.  If you failed to reaffirm your mortgage debt, then your mortgage debt is discharged and you are no longer personally liable on that debt and because of that you are not eligible for financial help with your mortgage through Save The Dream Ohio.

Homestead Exemption

Ohio's Bankruptcy Homestead Exemption Increased To $132,900 On April 1st, 2013

A provision of Am. Sub. H.B. 479, known as the Ohio Legacy Trust Act, signed by the Governor December 20, 2012, and effective March 27, 2013, increased the exempted interest in one parcel of property that a person or person's dependent uses as a residence from the then current maximum of $20,200 to $125,000.  Furthermore this exempted interest is by statute adjusted every three years by the Ohio Judicial Conference beginning April 1st, 2010.  As a result, the adjusted amount of $132,900 is applicable to the satisfaction of all judgments and orders on or after April 1st, 2013 and before April 1st, 2016. 

This homestead exemption increase of 658% will have a profound impact on those in debt who have substantial equity in their home.  Section 522 of the Bankruptcy Reform Act of 1978 grants debtors the power to avoid judicial liens to the extent that the liens encumber the debtor's interest in assets otherwise exempt from creditors' claims.

Judicial liens are those taken by previously unsecured creditors, such as credit card companies or medical providers, who obtain court judgments and take the steps necessary under Ohio law to turn those judgments into liens against real estate.

For example, this legislation and adjustment will allow a debtor, who owns a $200,000 house with an $80,000 mortgage, to file a chapter 7 bankruptcy and discharge judicial liens filed against the house for credit card and medical debt, because after the mortgage secured debt ($80,000) and the debtor’s homestead exemption ($132,900) are applied, there is no home equity left to apply to the liens. 

However with the old exemption of only $20,200, the Bankruptcy Trustee for the above debtor would be forced to sell the house and use the proceeds to pay the mortgage ($80,000), pay the debtor his homestead exemption ($20,200) and use the remainder of the home equity to pay the judicial liens.  With the passage of the Ohio Legacy Trust Act, the debtor will be able to reaffirm the mortgage, discharge (avoid) the liens and keep the house.  Moreover, if the house is titled in both spouses names, then each spouse can claim their own $132,900 exemption.

For further details see Ohio Legislative Service Commission’s Bill Analysis of Sub. H.B. 479 (pdf), at p. 5.

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This website provides general legal information and not legal advice.  The law is complex and changes frequently. 
Before you apply any general legal information to a particular situation, consult an attorney. 
If you cannot afford an attorney call 1-866-Law-Ohio (1-866-529-6446) or visit OhioLegalServices.org for your closest legal aid office.

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