Last updated Aug. 31, 2017.
If you’re considering filing for bankruptcy, if you’re struggling with debt and wondering what your options are, or if you’re just curious about the bankruptcy process and rules in Ohio, then you’ve come to the right place. We’ve put together a list of everything you need to know about bankruptcy in Ohio.
Below, we’ll go over the basics about what kind of debt is dischargeable in bankruptcy (meaning you don’t have to pay it back, or at the least pay pennies on the dollar), the difference between Chapter 7 and Chapter 13 bankruptcy in Ohio, cost of bankruptcy, how to file, and more.
Debt Basics for Ohio Consumers
There are two main types of consumer debt: secured and unsecured. Secured debt is debt that is linked to a specific piece of property. For example, your auto loan is secured by your car. If you don’t pay, the bank has the right to seize and sell that property.
Unsecured debt, on the other hand, is not linked to any particular piece of property. The most common types of unsecured debt are credit card and medical debt. The bank can’t sell any of your property, but it may file a collection suit against you.
Bankruptcy can help you get both types of debt under control, but is particularly a very useful tool for credit card and medical debts. It can wipe out your unsecured debts so you have enough cash to keep up with your secured debts.
However, not every unsecured debt can be discharged in bankruptcy.
First, “priority” debts must be paid in full. The most common priority debts are child and spousal support. Second, you can’t discharge a debt for personal injury or damage to property that you incurred while driving drunk. Third, you generally can’t discharge student loan debt. Fourth, you can’t discharge attorney fees, court fees, or fines owed to the government. Fifth, you can’t discharge any taxes except income taxes, and you can only discharge income taxes under very strict conditions.
Finally, you can’t discharge any debt that you failed to list on your bankruptcy schedules when you filed.
What is bankruptcy and how can it help me get out of debt?
Consumers typically file one of two different types of bankruptcies: Chapter 7 or Chapter 13. Chapter 7 and Chapter 13 differ in many ways, but both can help you deal with your debt. Both come with the protection of the automatic stay.
The automatic stay is one of the most important features of a bankruptcy. It’s a powerful legal tool that stops all collection actions and forces creditors to deal with your debt through the bankruptcy courts. You automatically invoke the automatic stay when you file a bankruptcy, so creditors must stop collection lawsuits, foreclosure proceedings, bank levies, wage garnishment, and other attempts to collect. The automatic stay can even help you recover a car that has been repossessed.
Let’s take a closer look at the different types of bankruptcy to learn what happens after the automatic stay kicks in.
Chapter 7 Bankruptcy in Ohio
In a Chapter 7 bankruptcy, you’ll split your assets into exempt and nonexempt pools. The exempt assets are safe from creditors; they’re protected by state and federal law. The bankruptcy trustee will sell the nonexempt assets and use the proceeds to pay your creditors. Most debtors have only exempt property, so they don’t have to give anything up. The Chapter 7 process typically takes less than 6 months. At the end, your remaining unsecured debt will be “discharged.” That means it’s legally forgiven and you no longer owe anything on those debts.
Unsecured debts are totally wiped out in Chapter 7. Secured debts, however, are not discharged and you’ll need to continue making payments if you want to keep that property. In some cases, your lender may require you to “reaffirm” your loan. When you reaffirm a loan, you basically renew your promise to pay back the loan. A reaffirmed loan can’t be discharged in a later bankruptcy, so you should consider carefully whether you’ll be able to make the payments.
Ohio Bankruptcy Exemptions under Chapter 7
Ohio offers a comprehensive set of bankruptcy exemptions designed to protect your personal property. After all, bankruptcy laws are designed to help you get your finances back on track, not leave you homeless and penniless.
Exemption amounts apply to your equity in property. That means that if you purchased a home for $200,000 and you still owe $130,000, you have equity of $70,000 in the home. If you have less than the exempt amount of equity in your property, that property is guaranteed to be safe from the bankruptcy process.
Your property may even be safe if you have slightly more equity than the exemption; the cost and hassle of selling the property may mean it’s not worthwhile for the trustee to bother with it.
These are some of the most important exemptions Ohio offers. Keep in mind, these amounts may change periodically, so it’s best to consult with an experienced Ohio bankruptcy attorney for updated exemptions.
- Homestead exemption: Up to $136,925 of equity in your home
- Car: Up to $3,775 of equity in a car or other motor vehicle
- Household goods: up to $12,625 in household goods, plus $1,250 wildcard exemption
- Wages: Up to 75% of wages are exempt
- Benefits: All benefits from federal and state programs are exempt; retirement accounts are also typically completely exempt
These are just the major exemptions; there are many others to protect other pieces of property.
Chapter 13 Bankruptcy in Ohio
Chapter 13 is often called a “reorganization” bankruptcy. In Chapter 13, you’ll set up a payment plan that will last 3-5 years. The court will distribute that cash to your creditors. You can continue to make payments on your secured debts, like home and auto loans, through the Chapter 13 plan. You can also make up arrearages, or back payments, through the plan. At the end of the plan, whatever unsecured debt you haven’t yet repaid will be discharged.
The length of your plan depends on your income. If you earn less than the state median income, your plan will be 3 years long. If you earn more than that, your plan will be 5 years long, unless you fully repay all your debts in less time.
Payment Plan under Chapter 13
The amount of your monthly payments is determined by comparing your average income to state and federal standards for living expenses. The remainder is your “disposable income” and you’ll have to pay that amount to the court every month. To get an idea of what you’d pay under a Chapter 13 plan, you need to start with your total income over the past 6 months, including wages, child support and alimony, tips, benefits, and any other source of cash flow. Divide that number by 6 to get your average monthly income.
From your average monthly income, you’ll subtract the national standard amounts for food, clothing, housekeeping supplies, personal care supplies, miscellaneous expenses, and out-of-pocket healthcare costs. Then, you’ll subtract the Ohio state expense standards for housing and utilities. Finally, you’ll subtract regional transportation expense standards.
Once you’ve subtracted all these expenses from your average monthly income, you’re left with your disposable income. That’s the amount you’ll have to pay every month to the court.
Which bankruptcy chapter is right for me?
The answer depends on your goals and your income. If you have too much equity in your home, you may lose it in Chapter 7. So, Chapter 13 may be a better option in that case. If you can’t keep up with a payment plan, Chapter 7 may be a better option for you. Chapter 7 takes less time and typically results in a smaller total payment, making it attractive to many debtors. However, the law limits who can file under each bankruptcy chapter.
In order to qualify for Chapter 7 bankruptcy, you must prove to the state that you really need Chapter 7 relief. The law is designed so that people who don’t actually need to file a bankruptcy don’t use the system to get out of paying debts that they can actually pay. So, to file under Chapter 7, you either must earn less than the state median income or you must pass the means test.
The means test is somewhat complex. You’ll need to take your average monthly income, take out allowable deductions, and multiply the result by 60. If that number is more than 25% of your non-priority unsecured debts, you have enough income to make meaningful payments to your creditors and you won’t be allowed to file under Chapter 7. You may choose to file under Chapter 13 instead.
Chapter 13 has its own limitations, too. In order to get your Chapter 13 payment plan approved, you’ll need to show that you’ll pay creditors at least as much through the plan as they would have gotten had you filed under Chapter 7. For example, if you have $10,000 of nonexempt property, your creditors would receive $10,000 if you filed under Chapter 7. In order to get your Chapter 13 plan approved, you must have total payments of at least $10,000.
If you calculate your disposable income and find that you can only pay a few dollars a month, the court will likely require that you file under Chapter 7.
The Bankruptcy Filing Process
Now that we know how bankruptcy works, let’s take a look at the actual process of filing a bankruptcy. If you’re planning on filing bankruptcy in Ohio, you’ll need to attend a credit counseling session with a state-approved credit counselor. The credit counselor will help you evaluate your finances and decide whether bankruptcy is the best option for you. Without proof that you’ve completed a credit counseling session, you won’t be allowed to file your bankruptcy.
Once you’ve completed your credit counseling requirement, you’re ready to begin the filing process. A bankruptcy filing under either chapter requires a lot of complex forms and financial information, so consider consulting an experienced bankruptcy attorney in your area for help. If you want to file the forms yourself, you can drop them off at a bankruptcy court for the District of Southern Ohio. The bankruptcy court in Dayton is located at 120 W. Third St.
Once you file the forms, the court will notify your creditors about your bankruptcy filing. Because of the automatic stay, they’ll stop all collection attempts. The next step is the “341” meeting, or the meeting of creditors. The bankruptcy trustee will set a time at least 3 weeks after you file, but no more than 40 days after for a Chapter 7 filing and no more than 50 days after for a Chapter 13 filing.
At the meeting, the trustee will ask you for any needed clarification about your financial documents and bankruptcy forms. Chapter 13 filers will need to explain their payment plan, which the trustee will take to the court for approval. In general, creditors don’t attend the 341 meeting for Chapter 13 filers. Mortgage and auto lenders may attend the 341 meeting for Chapter 7 filers to discuss the specifics of your debts and whether you want to reaffirm them.
If you’re filing under Chapter 7, the trustee will then start the process of selling any nonexempt property. If you’re filing under Chapter 13, you’ll start making your plan payments. Creditors may object to the way they’re treated in your bankruptcy, so you may need to file additional paperwork to deal with those objections. Here again, a good bankruptcy attorney can help keep your bankruptcy on track.
Finally, when your Chapter 7 liquidation or Chapter 13 plan is over, you’ll receive a discharge from the bankruptcy court. That means whatever unsecured debts you have left are forgiven and you get to start over with a clean financial slate. Your discharge may be denied if you put false information in your filing, if you acted fraudulently or in bad faith, or if you failed to keep up with your bankruptcy requirements.
How much does bankruptcy cost?
The cost to file a bankruptcy depends on the chapter under which you file and on whether you choose to hire an attorney. Filing a Chapter 7 case in the Southern District of Ohio costs $335 — that’s a $245 filing fee, a $75 administrative fee, and a $15 fee for the trustee. Filing a Chapter 13 case costs $310; it’s a $235 filing fee and $75 administrative fee.
The pre-filing credit counseling may also come with a small fee. It’s generally less than $100. If your case is extremely straightforward, those may be the only fees you have to pay. If it’s not, you’ll have to pay certain other fees. For example, a creditor might object to her treatment in your bankruptcy and force you into an adversary action. That’s a $350 filing fee. If you need to amend your schedules, it’s a $30 fee.
Attorney fees can range widely from case to case. More complex cases typically require more time and effort and so cost more. It may be hard to consider spending money on an attorney when you’re already have trouble making ends meet, but an attorney can make a huge difference in the success or failure of your bankruptcy. It is possible to file “pro se,” or without an attorney, but it’s not ideal. Filers who retain an attorney have a substantially higher rate of success than pro se filers.
Reputable bankruptcy attorneys generally offer free consultations, so you can ask about fees and the payment process. Chapter 7 filers often need to pay up front while Chapter 13 filers can pay their attorney fees through their Chapter 13 plan.
Is bankruptcy right for you?
After a successful bankruptcy discharge, you’ll be free of unsecured debt. That means you’ll have more cash for your daily expenses and to make payments on your secured debts.
Bankruptcy does have certain negative side effects, so you’ll need to weigh the pros and cons when deciding whether to file. Bankruptcy will lower your credit score, which can make it harder to get a credit card or a loan. You can rebuild your credit using secured credit cards or store cards, but it will take some time. Keep in mind that if you’re struggling with debt, your credit score is likely already suffering. Bankruptcy affects low scores less than high scores, so the impact of a bankruptcy on your score may not be very large.
If you’re struggling with debt and live in Ohio, contact us today for a free consultation. We can evaluate your financial situation and goals and help you decide if bankruptcy is the best option for you. Filing a bankruptcy is a big decision, and we can help make sure you have the information you need to make the right choice.