The simple answer to whether you have to include all of your property in bankruptcy in Ohio, or in any other state, is yes. Many people, though, do not want to include some of their property, such as a car or a house. If you’re current on a loan, but behind in other debts, do you have to include that loan in bankruptcy?
The Bankruptcy Filings
The purpose of bankruptcy is to get a discharge from all of your debts. The discharge means that you will not have to pay these debts back, now or at anytime in the future. In order to qualify for a bankruptcy, a debtor has to submit papers to the court. Obvious items to include in the papers are the debts that you want to be discharged. However, the papers that must be submitted go far beyond a simple listing of one’s debts. Under the Bankruptcy Code there are a series of forms that must be filed in your case, and these are quite extensive.
The forms that must be filed include eight different schedules, and they cover all of your property, all of your debts, and a budget showing income and expenses. So, even though someone might want to keep their car or their house, and continue paying the car loan or the mortgage, the bankruptcy forms require you to still list the house and car as property you own, and the mortgage and car loan as debts that you have. In order to properly fill out the required forms, the property you want to keep and the debts you might want to still pay will both have to be listed.
Property You Can Keep
What happens to your property in bankruptcy depends in part on the type of bankruptcy you file. Under Chapter 13, you can keep all of your property. You’ll make payments on your debts for 3 to 5 years and the remaining unsecured debts at the end of that time will be discharged. In Chapter 7, your non-exempt property may be sold and used to pay creditors. Most debtors have no non-exempt property and don’t have to give anything up. The unsecured debts remaining after any non-exempt property is sold will be discharged.
Property exemptions in Chapter 7 bankruptcy include basic necessities such as your clothing and furniture. Other common exemptions include equity in your home, retirement accounts, and Social Security benefits. In Ohio, you can keep a car in which you have equity of no more than $3,250.00. While this may seem like a small amount, remember that we’re talking about the equity in the car. To determine the equity, take the value of the car and subtract the balance due on the car loan. The remaining value is the equity. If you bought a car for $10,000 and still owe $7,500, you only have $2,500 of equity in your car and you can keep it in bankruptcy. In most cases, because of the way the automobile marketplace works, your car loan will exceed the value of your car. If that’s the case, you have is no equity in the car.
Reaffirming Car Loans in Bankruptcy
In order to keep you car in bankruptcy, you’ll typically have to “reaffirm” the debt. Reaffirming a debt means you promise to pay the debt, no matter what. If you keep the car and keep making the payments, but you have a problem in the future and miss a few payments, the bank still has the right to pick up the car. The right of repossession is not extinguished by bankruptcy. The car will then be sold at an auction and bring very little money to the bank, leaving a deficiency. If you have reaffirmed the car loan, you will still be responsible for the deficiency even though you filed for bankruptcy. If you do not reaffirm, you do not have to pay the deficiency. If you reaffirm a debt, you won’t be able to discharge that debt in a future bankruptcy.
One of the forms you’ll need to submit with the bankruptcy papers to the court is a statement of your intention with regard to reaffirming car loans. On this form, you state whether you want to give the car back, reaffirm the debt, or simply pay off the loan in one payment. The last option is rarely used, as few people filing for bankruptcy have the money to pay off the debt.
There is a fourth option for keeping your car, and it’s probably the best one. This has many names, the most popular of which is a “ride through”. A ride through is a good option if you do not want to reaffirm, but wish to keep the car and will keep making the loan payments.
There is no actual provision for a ride through in the bankruptcy law, but it’s frequently done. Since the fact that you are filing for bankruptcy shows that you are in financial distress, most attorneys do not want to set you up in a situation where you will have more such distress in the future. Filing for bankruptcy now is not a guarantee that you’ll be able to keep up with your car payments forever. You don’t want to get stuck with a big deficiency that you can’t discharge in a future bankruptcy, so think carefully and discuss the issue thoroughly with your bankruptcy attorney before you decide how to handle an auto loan in bankruptcy.
In Ohio, as in many other states, the ride through method usually works, and most car financing companies will not pick up the car simply because you do not reaffirm the debt. However, you have to be current on your car loan to do this. If you are, simply keep making the payments and you should be fine.
The one major exception to the ride through option is cars financed through Ford Motor Credit, or another company that Ford services, such as Mazda credit. If your car is financed through Ford, they will pick your car up if you do not reaffirm. Ford then has to follow the law and sell the car at an auction, after which there will be a deficiency that they cannot collect from you. It doesn’t make a lot of sense, but this is their policy. They are the only car company that does this at present. As always, you should check with your attorney as to whether the company that financed your car purchase is still willing to let your loan ride through, as this could change.
With houses, the ride through is also available in Ohio. Even if you are behind in your mortgage, you will often find that the bank will be willing to work with you.
Keeping Your Assets in Bankruptcy
Even though you may not want to include your house or your car in bankruptcy, you still have to list these assets, and the loans that go with them, in your bankruptcy papers. If you can continue to make the payments, you will be usually be allowed to keep the property. If you’re struggling with debt, contact our office to speak to one of our experienced bankruptcy attorneys. In a free consultation, we’ll discuss your goals and the types of debt you have. We’ll work with you to find the best possible solution for you.