When you file for Chapter 7 bankruptcy, or “straight bankruptcy”, the bankruptcy trustee evaluates all of your assets to see whether there is anything that can be used to pay back unsecured creditors. In most cases we see, our clients are able to keep all of their property, thanks to Ohio’s exemption laws. Exemption laws allow debtors to shield assets from creditors and the bankruptcy trustee. For example, Ohio’s new homestead exemption allows single debtors to shield up to $125,000 of equity in their primary residence. Married couples can double.
See also: reasons for denial of discharge
Should you have non-exempt assets, the trustee can sell your non-exempt assets and use the proceeds to pay off your debts. This is one of the reasons a trustee would object to your bankruptcy: they disagree with an exemption.
What can I exempt?
When he or she sells your stuff, the bankruptcy trustee receives a percentage of the value of your assets. It’s in his interest to sell everything possible that will result in a payment to your unsecured creditors. Bankruptcy exemptions cover your interest in the property, not the value of the property itself. If the exemption fully covers your interest in the property, selling the property will yield no payments to unsecured creditors and no payments to the trustee, so he won’t sell it.
To illustrate, let’s say you purchased a car with a $10,000 loan and you still owe $7,000. That means your equity in the property is $3,000. Since Ohio’s car exemption is $3,450, the bankruptcy trustee will not sell your car. If the Ohio exemption were only $1,000, the trustee could sell your car, pay you $1,000, and distribute the rest to your creditors (keeping his percentage).
Your available exemptions depend on where you live, and how long you’ve lived there. The federal government offers one set of exemptions and each state can set its own guidelines as well. Some states allow filers to choose between the federal and state exemptions. Consult an experienced attorney to determine what your state’s guidelines are and how best to use them to protect your property. Just because you currently live in Ohio, it doesn’t necessarily mean Ohio’s laws apply to your case.
Who can object?
As part of your case, and with the help of your attorney, you’ll need to file official forms with the bankruptcy court declaring which exemptions you’re claiming and for what property. You’ll need to provide information about how much you paid for the property and when and about the status of any related purchase-money loans. The more of your assets the trustee sells, the greater the payments the unsecured creditors (and the trustee) receive. So, the trustee and your creditors may object to certain exemptions in an attempt to free those assets for sale.
Sometimes objections are based on points of law, sometimes they’re based on stated valuations.
What happens if a party objects to my exemptions?
When you file for bankruptcy, you must have a meeting with your creditors and the trustee about what property you own, what you’re claiming as exempt, and what payments you’ll be making. If a creditor or the trustee believes that you have claimed an improper exemption, he’ll file an objection with the court and a bankruptcy judge will hear both sides’ arguments. Creditors must file their objections to your exemptions (or ask for an extension of the time limit) within 30 days of that meeting. Fed. R. Bankr. P. 4003(b). The bankruptcy judge will determine whether the exemption is allowable or not.
To which kinds of exemptions will creditors and the trustee object?
The trustee or creditor may object to your exemptions on several grounds. They may contest your valuation of your assets. For example, they may suggest that your interest in your home is $50,000 while you claim it to be only $15,000 and hence exempt. They may argue that you’re exempting property that isn’t covered by the exemption rules – perhaps you’re classifying a certain account as an exempt retirement account and they disagree. They may also object to your choice of exemptions and attempt to force you to use state over federal exemptions, or vice versa.
What should I do?
The rules governing bankruptcy exemptions are complex and unclear. If you’re considering filing for bankruptcy, speak to an experienced attorney. She’ll be familiar with the exemptions in your state and she’ll be able to help you use those exemptions to protect the property you need the most. She’ll also be able to counter the creditors’ and trustee’s objections.