Ohio Laws

What happens to my car if I file for bankruptcy in Ohio?

The answer to that question depends on two major factors: what type of bankruptcy you file and whether you own or lease your car.

Two different ways to file for bankruptcy…

Chapter 7 Bankruptcy

Although it’s referred to as a “liquidation,” most folks don’t lose any of their property in the Chapter 7 process, they shed their debts and get to start over with all their stuff. This is the case because exemption laws are in place to protect your property from the bankruptcy trustee.

In Ohio, the value of your interest in your personal vehicle is exempt up to $3,650.[i] You may also decide to apply all or part of the “wild card” exemption (which can apply to any type of property) to your vehicle. Ohio’s wild card exemption allows debtors to protect up to $1,225 property value.

Exemptions apply to your equity in your property, not the overall property value. Your equity in property is the value of the property minus outstanding liens. For example, if your car is worth $15,000 and you have a car loan for $10,000, your equity in the car is $5,000. In a chapter 7 case, your car is only at risk to the extent your equity exceeds the applicable exemption. In Ohio, that number is $3,225..[ii] For a list of other exemptions in the state of Ohio, visit this article.

Chapter 13 Bankruptcy

If you file for Chapter 13 bankruptcy, or “reorganization,” you file a petition with the court to stay debt collection (meaning that creditors can take no action against you for the duration) along with a plan for repayment of your debt over the course of three to five years. You must have a regular source of income to qualify for Chapter 13 bankruptcy. If you have non-exempt equity, you can protect your valuable assets, such as your car, more easily under Chapter 13 bankruptcy than Chapter 7.

In chapter 13 bankruptcy, the trustee doesn’t liquidate property with non-exempt equity. Instead, you pay the non-exempt value of your property as part of your repayment plan. This rule applies to cars.

If you own your car and have no car loan…

And file Chapter 7 bankruptcy:

In Ohio, the value of your interest in your car is exempt up to $3,650. If you own your car and have no outstanding loan, the value of your interest in your car is simply the value of your car. If your car is worth less than $3,650, it is completely exempt. If the vehicle is worth more than $3,650, the trustee of your bankruptcy will determine whether liquidation is worthwhile.  For example, if your car is worth $10,000, the trustee will likely decide to sell the car. He must then pay you the cash value of your exempt interest, or $3,650, and use the balance to pay your creditors. If, however, your car is worth $4000, the trustee will likely decide that it is not worth the time and expense necessary to sell the car and allow you to keep it.

And file Chapter 13 bankruptcy:

Chapter 13 does not involve seizure and liquidation of assets; if you own your car and have no outstanding loan, your plan payments will increase, but you will be able to keep the vehicle.

If you own your car and have an outstanding loan…

And file Chapter 7 bankruptcy:

Here the question is how much you owe on the car loan. If you owe $10,000 on a car that is worth $12,000, you can claim an exemption for the $2,000 of equity you have in the car.

Not sure if you’d like to keep your car? As a chapter 7 debtor, you have several options regarding your car. First, you can reaffirm your loan. Your creditor will require you to sign a reaffirmation stating how much you owe and the terms of payment. However, you should only reaffirm your loan if you’re very confident that you can continue to make payments. If you fail to keep up with the payment schedule going forward, your finance company can repossess your car and sell it at auction. If they receive less than the value of your loan at auction (which is usually the case), you are still responsible for repaying the remainder.

Another way to keep your car is to redeem it. This may be a good option if you owe more than the car is worth, but you must pay with a lump sum, which may be difficult. To redeem your car, you must pay the fair market value of the vehicle. For example, if you own a car worth $6,000 but owe $12,000 on it, you can pay your creditor $6,000 and keep the car free of the old lien.

The third option is to simply surrender the vehicle. You will no longer have a car, but you will also no longer have a car loan to worry about. This may also be a good option if you owe more on your car than your car is worth.

And file Chapter 13 bankruptcy:

Under Chapter 13 bankruptcy, if you keep up your payments you can keep your car. Your creditor may require you to sign a reaffirmation agreement.

If you have fallen behind on your payments, working out a payment plan with your creditor will be a part of the Chapter 13 proceedings. If you purchased your car within 30 months of filing for bankruptcy, you will owe the full value of the car. If you bought your car more than 30 months before filing, you will have to repay only the present value of the car. So, if you own a car worth $5,000 but owe $8,000, you only have to repay $5,000. This is called a “cram down.”

If you lease your car…

And file Chapter 7 bankruptcy:

You can decide whether to surrender the lease. If you’d like to get out from under the monthly payments, you can return the car and your debt will be discharged. The dealership has no right to come after you for future payments or late fees.

And file Chapter 13 bankruptcy:

You can assume the lease and keep making monthly payments; as long as you do you can keep your car.

You can also surrender the lease. The creditor will sell the car and apply the proceeds to your debt. If you owe more than the value of the car, you will be required to pay the difference. That debt will be discharged under your Chapter 13 payment plan.

What if my car has already been repossessed?

If the creditor has already sold or disposed of your car, you have no recourse. If, however, the creditor has repossessed the vehicle but has not yet disposed of it, you can demand that the car be returned. If the creditor has not sold the vehicle, it is still a part of your bankruptcy estate and the automatic stay protects your right to possession of the car.[iv]

See also: What Property Can I Keep in Chapter 7?

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Ohio Chapter 7 Bankruptcy: What Happens to My Property?

If you are considering bankruptcy, you have probably found yourself wondering exactly what, if any, property you own can be taken to pay your creditors. In a bankruptcy case, your property is held in an estate that is managed by a trustee. Theoretically, the trustee is the person responsible for selling off your property and using the money to pay your debts. However, most people who file for Chapter 7 find that they keep all of their property because it is exempt. Exempt property is anything you own that the trustee cannot sell to satisfy your obligations. In other words, when an exemption applies, you get to keep your stuff.

How Bankruptcy Works in Ohio

When you file for bankruptcy in Ohio, you must use the Ohio bankruptcy laws to protect your stuff. All states have their own bankruptcy systems, but some will also allow you to choose the federal system. In Ohio, you do not have that option (it doesn’t make much of a difference because Ohio laws are more favorable to consumers).

If you file for Chapter 7 bankruptcy, a trustee will assess the value of all of your property, and will determine what things are exempt. Then, the trustee will sell all of your non-exempt property (this happens rarely), and give the money to your creditors. After your nonexempt property has been sold, and your creditors have received the proceeds, all remaining debts are then forgiven or discharged.

If you file for Chapter 13 bankruptcy, your lawyer will help you work out a payment plan with your creditors. In this form of bankruptcy, exempt property helps the trustee determine exactly how much you can afford to pay your creditors. Rather than liquidating nonexempt property like in a chapter 7, debtors keep their property in chapter 13 but pay the nonexempt amount as part of their monthly payment.

See also: Can I qualify for chapter 7 bankruptcy?

Therefore, regardless of whether you file for Chapter 7 or Chapter 13 bankruptcy, you will need to understand exactly what things you own are protected. In order to thoroughly understand your bankruptcy case and provide yourself the best protection possible, you should consider speaking with a bankruptcy attorney.

Bankruptcy Exemptions in Ohio

Listed below are some of the most common bankruptcy exemptions utilized in Ohio.  If you are married, then you should know that married couples are allowed to “double.” Doubling means that each of the amounts listed below can be applied up to its maximum for the property each spouse. For example, you and your spouse may each exempt your own car up to the full exemption amount.

These amounts refer to the equity value of the asset. The equity value is the amount that the piece of property is worth in liquidation. The “liquidation value” of an asset is the amount that the asset is worth after any liens on the asset are subtracted. For example, if a home worth $100,000 has a $25,000 lien on it, then the home’s liquidation value is $75,000.

1. Homestead Exemption: Up to $125,000 of equity in your home is exempt
2. Motor Vehicle: Up to $3,675 of value in a motor vehicle is exempt
3. Cash: Up to $450 of cash that you currently have is exempt.
4. Household Goods: Up to $575 of value in any household item is exempt, for a maximum of $12,250 total value of household goods. This means multiple items can be protected up to $575 a piece, but the total after adding up those items cannot exceed $12,250.
5. Jewelry: Up to $1,550 total value for jewelry is exempt. This means $1,550 for ALL of your jewelry, not per item.
6. Tools of Trade: Up to $2,325 is exempt. The “tools of the trade exemption” refers to property that is used for a person’s profession or business.
7. Life Insurance: The full amount of your life insurance policy is exempt
8. Burial Plot: The full amount of your burial plot is exempt.
9. Workers’ Compensation: Workers’ compensation benefits are exempt.
10. Unemployment Benefits: Unemployment benefits are exempt.
11. Retirement Plan: Almost all forms of retirement plans are exempt up to their full amount.

What Else Should I Know?

Again, these are only the most common exemptions that apply in a bankruptcy case. However, every situation is different, and you need to understand the aspects of your unique case.  Bankruptcy is a difficult, and often frustrating process, especially if you are inexperienced in this area. Therefore, you should consider speaking with an experienced bankruptcy attorney before filing your case, selling any of your property, or attempting to negotiate with your creditors.

See also: Bankruptcy in Ohio: What You Need to Know

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A Quick Summary of the Ohio Foreclosure Process

“Foreclosure” is simply a term used to describe the legal process used by your mortgage company, or any other mortgage lender (such as a bank), to take possession of your home. A foreclosure is really just a lawsuit in which the mortgage company is suing you to take your house. If you have missed even a single payment, the lender has the right to foreclose, but usually will not do so until multiple payments have been missed. Ohio is a judicial foreclosure state, meaning a court oversees the foreclosure process. In Ohio, once the mortgage company has decided to foreclose, they will file a complaint with the court. If the mortgage lender is successful in the lawsuit, your home will be appraised, and then auctioned off at a public sheriff’s sale.

The entire foreclosure process can be completed in four to six months, but may take much longer. The process varies slightly from county to county, and it may be best to seek the advice of an attorney.

See also: Can bankruptcy help with Visa bills?

When Can My House be Taken by a Foreclosure?

Many people believe that their home cannot be foreclosed on until they have missed several payments. This is not true. As soon as the homeowner has missed a single payment the mortgage lender may begin a foreclosure lawsuit. However, that is unlikely, and usually the homeowner is three to four months behind on house payments before the lender will seek to foreclose.

How Will I be Notified About a Foreclosure?

First, you will receive a “notice of default” letter. The notice of default letter may also be called an “intent to accelerate,” and is usually received about 30 days before the mortgage company files a complaint with the court.

Next, the mortgage company will file a complaint in the Court of Common Pleas for the county where your home is located. Once the complaint has been filed, the court will send a copy of the complaint to every person who has an interest in the home. Interested people would include the owner, the owner’s spouse, the government, or anyone with a lien on the property. A “lien” gives a person the right to hold onto the property until a debt has been paid. Those receiving the complaint are named as defendants in the lawsuit.

What Should I Do After I Receive a Foreclosure Complaint?

Contact an attorney. It is very important that you respond to the foreclosure complaint. After receiving the complaint, you have only 28 days (including weekends) to respond, or else the court may enter a default judgment against you. A default judgment is a declaration by the court that the mortgage lender wins, and a foreclosure will be declared. Moreover, failing to respond will actually speed up the foreclosure process, causing you to lose your home sooner.

There are a variety of ways that a homeowner can respond to the complaint:

• Motion to Dismiss: If you believe that the mortgage company is foreclosing improperly, you may file a “motion to dismiss” the complaint, which is simply a way of asking the court to drop the lawsuit.

• Answer: You may “answer” the complaint by stating which of the allegations contained in the complaint filed by the mortgage lender are true, and which you wish to dispute.

• Extension: You may also ask for an “extension,” which is nothing more than asking for more time to respond to the complaint than the usual 28 day period.

The best way to respond will depend on your unique situation. It is best to receive advice from an attorney before deciding how to respond. It is important to know that once you have filed your response, you may still work out a solution with your mortgage lender to have the lawsuit dropped. However, this typically requires making a substantial payment towards arrearages, if not the full amount owed.

After your response, the mortgage lender will probably file a “motion for summary judgment,” which is a way of asking the court to declare that you have no proper legal defense to the foreclosure lawsuit. Therefore, if the motion is successful, the mortgage lender has won the lawsuit, and the foreclosure will move forward.

What Happens After the Court Declares a Foreclosure?

Should the homeowner lose the foreclosure lawsuit, the court will declare a “sheriff’s sale.” This means that the property will be sold at a public auction. Before the auction is held, the sheriff will have your property appraised to determine its value. At the auction, your home will be sold to the highest bidder, but will not be sold for less than 2/3 of its appraised value.

Anyone may purchase your home after it has been foreclosed. Yet, those with an interest in the property, as well as family and close friends, may only purchase the property by paying the full amount that you owe. After the sale is complete, the court will validate the sale with a “writ of confirmation.” Once the sale has been confirmed, the purchaser has the right to occupy the property. If you have not yet left the property, either the mortgage company or the purchaser may ask for a “writ of possession” to have you forcibly removed.

Can I Still Save My House After the Foreclosure Sale?

Yes. After the Sheriff’s sale, you can still save your house during the “redemption period” by paying the full amount owed. The redemption period is the time between the sale of the home at the auction, and the confirmation. This time period may be as long as 90 days, or as brief as a day or two.

See also: Can I Get a Repossessed Car Back by Filing Bankruptcy?

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Bankruptcy Temporarily Stops Foreclosure

Yes, filing for bankruptcy will stop foreclosure in Ohio, or any other state for that matter, at least on a temporary basis. The minute a bankruptcy case is filed, an injunction known as the automatic stay springs in to place. The automatic stay is and order of the bankruptcy court which prevents creditors from continuing with collection efforts while the court oversees the bankruptcy case. Lawsuits, garnishments, collection calls, and yes even foreclosure, are absolutely prohibited while the automatic stay is in effect. You can file a bankruptcy the day before a scheduled foreclosure sale and your bank will have no choice but to call it off.

See also: A Story About Bankruptcy in Dayton, OH

The Automatic Stay Does Not Last Forever

Debtors should be aware that the automatic stay will not last forever. For example, if you file bankruptcy to stop the foreclosure sale of your home, but have no ability to catch up on past due payments, the mortgage company will ask the court for relief from the automatic stay and, in most cases, will be able to proceed with foreclosure.  Similarly, you may benefit from the protection of the automatic stay for 3 to 4 months while your Chapter 7 bankruptcy case is pending, however, once the case closes and the discharge is issued, you will need to once again continue making payments as agreed in your mortgage documents. The bottom line is that filing for bankruptcy does not give you a free house. The automatic stay will disrupt the foreclosure process, and stop it for time, but your lender will be able to foreclose if you can’t maintain normal mortgage payments.

The Chapter 13 Option

If you are capable of maintaining your normal mortgage payments, but simply don’t have the funds to pay back past-due payments in a lump sum, chapter 13 bankruptcy may be a good option. Chapter 13 bankruptcy allows debtors to pay back mortgage arrearages in manageable monthly payments over a 3 to 5 year period.  Rather than being forced to come up with past due amounts in one or two big checks, the past-due amounts are broken up over the life of the Chapter 13’s payment plan, which is much more manageable for most families and allows for many of them to keep their home rather than losing it to foreclosure. A long as mortgage payments are maintained, the automatic stay will remain in effect for the entire lifecycle of the chapter 13 case, usually 3 to 5 years.

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Homestead exemptions have been enacted in most states to protect homeowners from their creditors. Outside of bankruptcy, a homestead exemption protects your primary residence from judgment creditors. Inside the bankruptcy process, the homestead exemption prevents the trustee from selling your home to satisfy creditor claims. The basic idea behind the homestead exemption, and exemptions in general, is that creditors shouldn’t be able to take everything you have, your home being no exception.

Ohio’s Homestead Exemption Just Got A Lot Bigger!

As of March 27, the Ohio homestead exemption is now $125,000, which represents a 500% increase from the previous homestead number of $21,625. Married couples filing a joint bankruptcy case can double the exemption to protect up to $250,000 of home equity in a primary residence.

How It Works

The homestead exemption applies to equity, not overall real estate value. You can calculate home equity by subtracting any outstanding mortgage balances from the appraised value of your home. Need an example?

Let’s say you and your wife live in Dayton and jointly owe a judgment creditor $1,000,000. You own a home also worth $1,000,000 that has a mortgage lien of $850,000. Your home equity is $150,000. Due to the judgment as well as other debts, you and your wife file for chapter 7 bankruptcy.

In the example above, you’ll be able to file bankruptcy, shed all of your unsecured debts, and still keep your home.

Why? How?

Because Ohio’s new homestead exemption allows married couples to protect up to $250,000 of equity in a primary residence. With only $150,000 of equity in the example above, you’re in the clear despite the fact that your house has an appraised value of $1,000,000.

What Happens if the Cards Fall the Other Way?

For the sake of discussion, let’s say your home equity was $500,000 instead of $150,000. What then?

Well, in this example, the trustee would sell the home, but you and your wife would be entitled to the amount of your exemption. After the home was sold, you’d be receive a check for $250,000. The rest would go to your creditors.

What Happens if it’s a Close Call

Let’s change the facts again and say that your home in Dayton has $257,000 of appraised equity, putting you only $7,000 over the limit. Do you lose the home?

Absolutely not.

Trustees don’t want to sell your home. It causes them to incur costs and takes valuable time and money. In cases where equity barely peeks out over the exemption limit, it is almost always possible to negotiate a cash settlement with the trustee and keep your home.

A Word About Investment Property

It is important to understand that the Ohio homestead exemption applies only to primary residences, investment property is not protected. The facts of each case matter, but a primary residence can usually be defined as a home that you live in everyday. The place where your groceries are kept, where you put the kids to bed, where the paper is delivered. You get the idea. The house at the lake that you visit every other weekend is not your primary residence.

If you’re unsure as to the status of your real estate under the law, consult a lawyer.

See also: What Property Can I Keep in Chapter 7?, Can I Keep My House and Car if I File for Bankruptcy?

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