Bankruptcy helps struggling people get back on their feet by lessening their debt burden without stripping them of everything they own. Filing for bankruptcy can be a difficult process, but it can also be a helpful financial step. Exemptions let you keep the things you need to maintain your home and employment.
When it comes to housing, bankruptcy laws were created in part because society doesn’t benefit when people are put out on the street, and bankruptcy courts work to help ensure that doesn’t happen. So, in most cases, bankruptcy allows you to keep your home. But, while there are many ways to protect your house when filing for bankruptcy, it doesn’t automatically mean you’ll keep it.
The circumstances must be right to keep your house when you file, and you’ll need to be sure that you meet the requirements of the chapter you file:
- Chapter 7 filers must be current on payments and protect all home equity with a bankruptcy exemption.
- Chapter 13 filers behind on a mortgage can catch up on missed payments and keep the house.
Chapter 13 bankruptcy lets you keep your home, even if you’re behind on payments. If you keep your house after filing for Chapter 7, the fact that other debts are discharged should make it easier to pay your mortgage. Paying off debt is an obligation, and no “free house” option comes with it. No bankruptcy action forgives a primary mortgage.
What the Homestead Exemption Means in Ohio Bankruptcy
Although each type of bankruptcy is distinct, they both have exemptions that let you protect some important assets to get by. Some exemptions let you keep your car and other necessary items. The amounts you’re able to exempt vary by state, but the property types are limited to necessities. Luxury items are never on the list.
Both Chapter 7 and Chapter 13 bankruptcy types have homestead exemptions. The homestead exemption lets you protect some of the equity you have built in your home in a way that makes it more possible to keep your house.
The federal government, as well as 42 states, have a homestead exemption that allows a person filing for bankruptcy to protect a certain amount of equity in a home. In Ohio, the homestead exemption applies to real and personal property that you or your dependents use as a residence, including your home, condominium, or mobile home. Ohio debtors or their dependents must reside in the property they claim the homestead exemption for when bankruptcy is filed.
Nearly ten years ago, the Ohio legislature raised the homestead exemption by over 478%, from $21,625 to $125,000. This meant that Ohio homeowners were suddenly able to protect nearly $100,000 more in home equity. That number isn’t fixed, but it has since grown steadily because state lawmakers have recognized that property values and the cost of living change over time. With that in mind, those lawmakers have built in an automatic adjustment in the homestead exemption every three years.
The most recent adjustment took place in April 2022, and the current amount of the Ohio homestead exemption at this writing at the end of 2023 stands at $161,375. Unless the legislature changes it again–which is unlikely–that number will remain the same until March 31, 2025.
Further, because Ohio law extends the homestead exemption and other property exemptions to “every person,” both spouses in a married couple filing bankruptcy jointly can claim the Ohio homestead exemption. This extension increases the amount of equity they can protect to $322,750, which is more than the typical home value in Ohio.
Car Equity and the Wildcard Exemption in Ohio Bankruptcy
The answer to whether you will lose your car in bankruptcy in Ohio is “not necessarily.” The Ohio Motor Vehicle Exemption enables you to exempt up to $3,000 of equity in one vehicle. But if your car is financed, you’ll likely have to meet other requirements, including putting the exemption up against both your car’s value and the amount you owe on the loan. An experienced bankruptcy attorney
Further, the Ohio Wildcard Exemption lets you exempt any property of your choosing. As of the end of 2023, this exemption currently covers up to $1,075.
Alternatives to Home Foreclosure: Loan Modifications and Chapter 13 Bankruptcy
Loan modifications and Chapter 13 bankruptcy are two options if you’re facing foreclosure. Modifying your loan involves renegotiating your mortgage terms to make payments more manageable. You can do this by either reducing the interest rate, extending the loan term, or converting a variable interest rate to a fixed one.
On the other hand, if you’re earning an income, Chapter 13 bankruptcy lets you develop a plan to repay all or part of your debts. You can propose a repayment plan to make installments to creditors over three to five years. Filing for Chapter 13 bankruptcy can stop foreclosure proceedings and may allow you to cure delinquent mortgage payments over time. But unlike loan modifications, Chapter 13 affects your credit score significantly and remains on your credit report for seven years.
Rebuilding Your Credit and Regaining Financial Stability After Bankruptcy
Rebuilding credit after bankruptcy starts with regularly reviewing your credit reports for accuracy and disputing any errors. You can also obtain a secured credit card, where a deposit serves as collateral, as a way to allow for controlled spending and show responsible credit use. Of course, consistently paying bills on time is critical since your payment history significantly impacts your credit scores. Eventually, you can apply for new credit, like a small loan or unsecured credit card, and keep your balances low to further improve your creditworthiness. It’s essential that you budget and build an emergency fund to avoid falling back into debt. Over time, these actions can lead to improved credit scores and financial stability. But you’ll have to be patient because bankruptcy can remain on your credit report for up to 10 years.
Call 937-254-3738 for a consultation. Richard P. Arthur has more than three decades of experience helping clients in Dayton and Trotwood, as well as Montgomery, Greene, Miami, Clark, and Warren counties.