What Can You Keep In Chapter 13 Bankruptcy?

One of the biggest concerns facing people contemplating Bankruptcy is what property they can keep. Chapter 13 Bankruptcy allows people to keep many things they would lose if they chose to seek bankruptcy protection under Chapter 7 of the Bankruptcy Code. In Chapter 7, a person frequently loses property when its value exceeds the Property Exemptions which the are entitle to claim in that property.

Property Exemptions are established by statutes set by both the Federal government and the various State governments. Some states allow Debtors to choose either the Federal Exemptions or the State Exemptions depending on which set of Exemptions are more advantageous based on the property they own. Other states have opted out of the Federal Property Exemptions and people in those states can only use the State Property Exemptions. Nevertheless, if you haven't lived in the state where your Bankruptcy petition is filed for at least three years prior to filing your Bankruptcy Petition, then you may be forced to use the Federal Exemptions.

Ohio opted out of the Federal Exemptions and people who have lived in Ohio for at least three years can only use the State of Ohio Property Exemptions. Fortunately, over the last ten years, Ohio has been increasing its Property Exemptions. Prior to the increase in the Property Exemptions, Ohio had one of the lowest Homestead Exemptions in the country only allowing Debtor's to retain a residence with a value of $5,000.00 or less. Today, as of the date on which this article was written, the Ohio Homestead Exemption stands at $145,425.00 per person or $290,850.00 per married couple if the own the residence jointly.

The Ohio Homestead Exemption is a great benefit to Ohio residents. By way of example, assuming you qualify for Chapter 7 and own a home worth $290,850.00 that is unencumbered by a mortgage, you can still retain that property in your Chapter 7 case and it cannot be touch by creditors or the Chapter 7 Trustee. Moreover, if any judgment liens have attached to the residence, they can be avoided in Chapter 7 Bankruptcy on the grounds it impairs the Homestead Exemption. This does not apply to Statutory Liens such as State and Federal Tax Lien, Mechanics Liens, HOA Liens and other liens that arise on a statutory basis. Moreover, you cannot avoid consensual liens such mortgages that you voluntarily granted to a creditor.

As for other property that is exempt under Ohio Law, the following Property Exemptions are in effect as of the date this article was written. These are individual exemptions and if the property is owned jointly with a spouse, the exemption is double the amount indicated:

Cash Exemption: $500.00

Wearing Apparel and Household Furnishings Exemption: $13,400.00 but not more than $625.o0 in each item

Jewelry: $1,700.00

Tax Qualified Retirement Plans and IRAs: Unlimited to the extent necessary for support

Motor Vehicles: $4,000.00 in one automobile

Wild Card Personal Property Exemption: $1,325.00 in any item of personal property

Life Insurance Policies: Unlimited Exemption for Policies with a cash value where the beneficiary is Debtor's spouse or child

The full list of Ohio Exemptions are set forth in Ohio Revised Code Section 2329.66 which can be found here.

Unlike Chapter 7, however, in Chapter 13, you can keep property that exceeds the exemption provided you have the income to pay, through a Chapter 13 Plan, unsecured creditors what they would have received if you filed case under Chapter 7 of the Bankruptcy Code. For example, let's say you own a motor vehicle worth $9,000.00 that is not encumbered by a loan. In a Chapter 7 Bankruptcy Case, you would lose the vehicle because it exceeds your exemption. The Chapter 7 Trustee would take the car, sell it, give you your $4,000.00 exemption and pay the rest to creditors less the fee to which the Chapter 7 Trustee is entitled and selling costs and expenses.

In Chapter 13, you could keep the above-referenced vehicle if you had sufficient income to fund a Plan that would pay your unsecured creditors about $3,750.00 which reflects the equity less the Chapter 7 Trustee Fee. The actual amount would be slightly lower as the cost of selling the vehicle could also be deducted from the amount you are required to pay to unsecured creditors.

So, Chapter 13 Bankruptcy offers many advantages to people with significant debts who also own assets that are worth more than the Property Exemptions they are entitled to claim in those assets. Exemption Planning and valuing your assets and claiming Property Exemptions is a complex process and one you should undertake with the assistance of an experienced Bankruptcy Attorney.