Keeping Your Property in a Chapter 7 Bankruptcy in Ohio
I will start from the beginning. A chapter 7 bankruptcy is a “liquidation.” What that means is that, in theory, everything you own becomes property of the bankruptcy estate. In theory, the chapter 7 trustee assigned to your case would take everything you own, sell (“liquidate”) your assets, and use the proceeds from the sale to repay your creditors. Again, this is the THEORY of a chapter 7 (“Liquidation”).
House: Generally speaking, if you are filing chapter 7 bankruptcy in an Ohio Court, you are able to protect, or “exempt,” $136,925* of equity in your primary residence. And you can double that amount ($273,850*) if you and your spouse are both on the Deed, and you file a joint case. For example, you own your residence worth $150,000 and the mortgage is only $90,000. You have $60,000 of equity in your house. Ohio allows you to file chapter 7 bankruptcy, eliminate all your credit card debt, medical bills, loans, etc., and still protect all $60,000 of equity in your house!
Car: Ohio allows you to protect $3,775* of equity in one vehicle that you own. For example, you could own a 2007 Ford Fiesta worth $3,500 and keep it while still filing a chapter 7 and eliminating the rest of your debts. Not to mention, you don’t have to worry about the trustee taking assets that don’t have equity in them. For example, you could be purchasing a 2013 Mercedes Benz worth $23,000 and still owe $23,000 on the financing, and you’d be allowed to keep it, as long as you were current when you filed and continued to make the payments. The reason being, the trustee is only interested in taking assets that he could sell and profit from. In the case of the Mercedes, he could sell it for $23,000, but then he would have to turn over that money to the financing company.
Furniture/Household Goods: Ohio law allows consumers to protect an aggregate of $12,625 ($25,500 in joint cases) in furniture/clothes/electronics/household goods (but only up to $600 in a single item). In other words, you can probably keep all your household items and still file a chapter 7 and eliminate all your debts. In my experience with thousands of chapter 7 cases, I have never seen a case that involved enough furniture/household goods that raised the trustee’s eyebrows.
Retirement Accounts: Ohio and Federal bankruptcy laws are very liberal when it comes to protecting retirement accounts. Almost all monies in retirement accounts are protected even if you file bankruptcy. The public policy behind this liberal protection is to incentivise consumers saving for retirement without fear that they could lose it in a bankruptcy.
Life insurance: Term life insurance rarely, if ever, has any cash value during your lifetime. Whole life insurance, on the other hand, often builds up a cash surrender value, against which you can borrow during your lifetime. The trustee often takes an interest in that value, as it can be a large amount. However, Ohio offers protection to whole life insurance values if the beneficiary is either (1) a spouse, (2) a child, or (3) a dependent of yours. This means that if the beneficiary is one or more of these 3 groups of people, then you can file bankruptcy and maintain your whole life insurance policy without having to cash it in or surrender it. There is some debate whether the child beneficiary is also required to be a dependent, but my research of the case law in the Southern District of Ohio, Eastern Division has led me to believe that it is a child OR dependent. That is great news for consumers that have invested in whole life insurance policies.
Click here to find out what else is protected in Ohio. Also, it may be fun to research other states exemptions to see what property you can keep in other states. For example, Texas allows bankruptcy filers to keep 12 head of cattle…
I think it’s important for states to allow you to protect certain assets in a chapter 7 bankruptcy; if people had to fear losing everything if they filed bankruptcy, our society would see a marked decrease in risk-taking because the risk may not be worth the reward. I think as a society we should place high value on risk-takers because it often leads to innovation and progress.
*All figures as of 8/24/2017 -- subject to change, of course.