One of the first questions asked when we first meet with clients is how much property they’re allowed to keep. Of course, the answer depends on the type of property you own, the value of the property, and the exemptions that apply to that property. Learn more about bankruptcy exemptions and how they affect your Chapter 7 bankruptcy.
Chapter 7 Bankruptcy Exemptions
When a debtor files Chapter 7 bankruptcy, the court appoints a trustee, who is given authority to sell your non-exempt assets to pay creditors. Filing for bankruptcy doesn’t necessarily mean that you’ll lose any of your property. The trustee cannot sell an exempt asset to pay your creditors.
Exemptions included in both federal and Ohio bankruptcy law allow you to keep a certain amount of property, giving you that “fresh start” we discussed on the What is Bankruptcy page. Because of the exemptions included in bankruptcy law, most debtors who file Chapter 7 bankruptcy keep all or most of their property.
How Much Property Can I Exempt?
Exemptions vary by state. The amount of property protected under Ohio law is covered in the chart below. Some states allow you to use federal exemptions, or choose between state or federal exemptions, but Ohio requires you to use Ohio exemptions.
You are typically allowed to keep a certain amount of equity in your house and personal property (like a car, retirement account, and wages). It’s rare that you’re allowed to exempt much cash or money in the bank. Also most household goods and clothing usually are exempted unless they are extremely valuable.
How Do Exemptions Work in Chapter 7 Bankruptcy?
Part of the process of filing bankruptcy is accounting for all your property, and listing any property to claim any exemptions. When the value of a property is less than the allowed exemption, you are allowed to keep it. The trustee is allowed to sell any property not covered by an exemption, and use the proceeds to pay your creditors.
Sometimes, however, things can be much more complicated, such as if the exemption only partially covers a property. If you have secured debt like a car payment or mortgage, the creditor’s lien on the property ensures that creditor gets paid first.
Just to use round numbers, let’s assume you have a car worth $10,000, and your outstanding car loan is $8,000. Let’s assume you are allowed to exempt $3,775 in vehicle equity. The trustee must pay the lender $8,000, leaving equity of $2,000. The bankruptcy exemption would protect all of the vehicle equity, and the trustee would not sell the car.
In Ohio, the vehicle exemption currently is $3,775. If your car was worth $10,000 but you had a car loan of only $2,000, the trustee could sell your car and distribute the proceeds like following:
- Pay the lender $2,000
- Pay you the $3,775 exemption amount
- Pay sales fees and any costs out of the remaining $4,225 and
- Distribute the remaining funds to other creditors.
Since Ohio has a “wildcard” exemption, you can use it in addition to the vehicle exemption to protect more vehicle equity. (The Ohio wildcard exemption currently is $1,250)
Property “Abandoned” by the Trustee
In some cases, you may not be able to fully exempt an asset, but if selling a piece of property won’t net a worthwhile amount, the trustee may decide to “abandon” it. Sometimes this happens when the value of the property is only slightly more than the amount of the exemption, after accounting for the costs and fees associated with selling it. When the trustee abandons the property, you are allowed to keep it.
Purchasing Property from the Bankruptcy Estate
If you have certain property that you’re unable to exempt, but you’d like to keep, the trustee may agree to let you purchase it at a discount; often the value of the asset less the fees and costs related to the sale. You’ll have to show the trustee that you are using funds for the purchase that aren’t a part of the bankruptcy estate, such as wages earned after filing, or a loan from a friend or family.
Exemptions in Ohio Allow Debtors to Retain Certain Property in Bankruptcy
In a Chapter 7 bankruptcy filing, you can protect some or all of your property with Ohio’s bankruptcy exemptions. The state’s exemptions also come into play with a Chapter 13 filing. Learn what types of property are included in Ohio’s bankruptcy exemptions.
Federal Exemptions Not Optional in Ohio
There are bankruptcy exemptions established by federal law but, like most states, Ohio has a list of their own exemptions. Other states may allow you to select which set of exemptions you wish to use in your bankruptcy case. Ohio, however, does not; you must use the state exemptions when you file bankruptcy in Ohio.
There also are federal non-bankruptcy exemptions, which protect certain property like military and federal retirement benefits.
Ohio Allows Couples to Double Exemptions
Filing a joint bankruptcy as a married couple has additional benefits: the couple may “double” the exemption amount, meaning they are each allowed to claim the full exemption amount. Filers may only claim exemption for property they own.
Bankruptcy Exemptions Commonly Used in Ohio
Following table is a list of the most commonly used bankruptcy exemptions in Ohio. References are to the Ohio Revised Code (unless otherwise indicated).
|$136,925||Value in one parcel of real or personal property (home, manufactured, or mobile home) that you or your dependent uses as a residence||2329.66(A)(1)(a)|
|$475||Cash on hand or deposit||2329.66(A)(3)|
|$3,775||Value in one motor vehicle||2329.66(A)(2)|
|$12,625||Value in household goods, such as furnishings and appliances, up to a value of $600 per individual item||2329.66(A)(4)(a)|
|$1,600||value in jewelry||2329.66(A)(4)(b)|
|Interest in one burial lot||2329.66(A)(8)|
|Tax exempt retirement accounts, including 401(k), 403(b), and profit-sharing plans||11 U.S.C. § 522|
|IRAS and Roth IRAs to $1,283,025||2329.66(A)(10)(c)|
|State teacher retirement system||3307.41|
|Crime victim's compensation received during 12 months before filing||2329.66(A)(12)(a); 2743.66(D)|
|Disability assistance payments||2329.66(A)(9)(f); 5115.07|
|Earned income tax credit and child tax credit||2329.66(A)(9)(g)|
|Unemployment compensation benefits||2329.66(A)(9)(c)|
|Vocational rehabilitation benefits||2329.66(A)(9)(a); 3304.19|
|Workers’ compensation benefits||2329.66(A)(9)(b)|
|$1,250||value in any property||2329.66(A)(18)|
|Spousal or child support, to the extent reasonably necessary for support||2329.66(A)(10)(b)|
|Tools of the Trade|
|$2,400||value in implements, books, and tools of your trade, occupation, or business||2329.66(A)(5)|
|529 savings plans||2329.66(A((10)(e)|
While this list includes some of the commonly used exemptions in Ohio law, there may be other exemptions available to a debtor to protect specific property. Ohio updates their exemptions in a three-year cycle, with the next update scheduled for April 2019.