Bankruptcy

Types of Bankruptcy in Ohio

1. Chapter 7 Bankruptcy (Liquidation)

   Chapter 7 bankruptcy is often referred to as a “liquidation” bankruptcy. In a Chapter 7 filing, the debtor’s non-exempt assets (property that is not protected by state exemptions) are sold to pay creditors. However, most debtors in Ohio who file for Chapter 7 bankruptcy do not have many non-exempt assets, meaning that they can retain most of their property.

   The process of Chapter 7 typically takes about three to six months to complete. Most unsecured debts, such as credit card balances, medical bills, and personal loans, are discharged (eliminated). However, some debts, including student loans, child support, alimony, and certain taxes, are generally not dischargeable under Chapter 7.

   To qualify for Chapter 7, Ohio residents must pass the "means test," which evaluates their income relative to the state’s median income for their household size. If their income is above the median, they may not be eligible for Chapter 7 and may need to consider filing for Chapter 13.

2. Chapter 13 Bankruptcy (Reorganization)

   Chapter 13 bankruptcy, known as “reorganization” bankruptcy, allows individuals to keep their property while repaying creditors over a period of three to five years. Rather than liquidating assets, Chapter 13 involves creating a repayment plan based on the debtor’s income and ability to pay. This plan is submitted to the court, and if approved, the debtor begins making monthly payments to a trustee, who distributes the funds to creditors.

   Chapter 13 is ideal for people who are behind on secured debts, such as mortgage payments or car loans, and want to avoid foreclosure or repossession. It is also a good option for individuals with non-exempt assets they want to keep, as well as for those who have income above the Chapter 7 means test threshold.

   The Chapter 13 repayment plan typically lasts between three and five years, depending on the debtor's income and the amount of debt. Once the repayment plan is completed, any remaining eligible debts are discharged.

The Bankruptcy Process in Ohio

1. Pre-Filing Credit Counseling

   Before you can file for bankruptcy, you must complete a credit counseling course from an approved agency. This is a requirement under federal law and must be completed within 180 days before filing. The course is designed to help you evaluate your financial situation, explore alternatives to bankruptcy, and determine whether filing for bankruptcy is the best course of action for you.

   Once the credit counseling is completed, you will receive a certificate that must be submitted to the court when you file for bankruptcy.

2. Filing the Bankruptcy Petition

   The first formal step in the bankruptcy process is filing a petition with the bankruptcy court. This petition contains detailed financial information, including a list of your debts, income, expenses, assets, and property. Ohio residents will file their bankruptcy petition with the U.S. Bankruptcy Court for the district where they reside. Ohio is divided into two districts for bankruptcy purposes: the Northern District and the Southern District.

   Along with the petition, you will need to submit additional documents, including:

   • A list of creditors
   • Recent tax returns
   • Pay stubs and bank statements
   • A list of your assets and liabilities

   It's important to be thorough and accurate when filling out this information, as discrepancies or omissions could delay the process or result in your case being dismissed.

3. Automatic Stay

   Once your bankruptcy petition is filed, an automatic stay takes effect. The automatic stay is a court order that immediately halts most collection activities, including phone calls from creditors, wage garnishments, foreclosure proceedings, and repossessions. This stay provides you with immediate relief from creditors while the bankruptcy process is ongoing.

   However, there are exceptions to the automatic stay. For example, if you have recently filed for bankruptcy multiple times in a short period, the court may lift the stay or impose additional requirements.

4. Meeting of Creditors (341 Meeting)

   About 20 to 40 days after filing, you will attend a meeting of creditors, also called a 341 meeting. During this meeting, the bankruptcy trustee will ask you questions under oath about your finances, your assets, and your debts. Creditors also have the opportunity to attend and ask questions, although most creditors do not appear.

   The 341 meeting is typically straightforward and is an opportunity for the trustee to ensure that your bankruptcy petition is accurate and that you qualify for the relief you're seeking.

5. Discharge of Debts

   For Chapter 7, the discharge of your eligible debts typically occurs about three to six months after filing. This means that most of your unsecured debts will be wiped out, giving you a fresh financial start.

   In a Chapter 13 case, debts are not discharged until you have completed the repayment plan. At the end of the plan, any remaining eligible debts are discharged, and you are no longer responsible for paying them

Ohio Bankruptcy Exemptions

One of the most important aspects of filing for bankruptcy in Ohio is understanding the state’s exemption laws. Exemptions allow you to protect certain property from being seized and sold by the bankruptcy trustee. Ohio residents can use either the Ohio state exemptions or the federal exemptions, whichever offers more protection.

Some key Ohio bankruptcy exemptions include:

• Homestead Exemption:Protects up to $155,675 in equity in your primary residence.
• Motor Vehicle Exemption: Protects up to $4,000 in equity for one motor vehicle.
• Personal Property: Exempts up to $400 in clothing and household goods.
• Tools of the Trade: Protects up to $2,025 in tools or equipment used for work.
• Retirement Accounts: Certain retirement accounts, such as 401(k)s and IRAs, are fully exempt.

It's important to consult with an experienced bankruptcy attorney in Ohio to ensure that you are maximizing your exemptions and protecting your assets to the fullest extent.

Filing for bankruptcy has long-term consequences, primarily affecting your credit score. A Chapter 7 bankruptcy remains on your credit report for up to 10 years, while a Chapter 13 bankruptcy remains for 7 years. However, many people who file for bankruptcy find that their credit scores begin to improve over time, particularly if they are able to manage their finances responsibly after the bankruptcy is complete.

While bankruptcy can have a negative effect on your credit, it is often the first step toward rebuilding your financial future. Many people who file for bankruptcy are able to obtain new credit and purchase homes or cars in the years following their discharge.

Conclusion

Bankruptcy can be an effective tool for individuals in Ohio who are struggling with overwhelming debt. Whether you are considering Chapter 7 or Chapter 13 bankruptcy, it’s essential to understand your options, the process involved, and the impact it will have on your financial future. If you’re facing significant debt and are considering bankruptcy, consulting with a qualified bankruptcy attorney in Ohio is an important first step to ensure you understand your rights and the best path forward for your situation.

Works Cited

1. U.S. Courts. (2024).Types of Bankruptcy. U.S. Courts. Retrieved from https://www.uscourts.gov/FederalCourts/Bankruptcy/TypesofBankruptcy.aspx
2. U.S. Department of Justice. (2024).Means Testing for Chapter 7 Bankruptcy. U.S. Department of Justice. Retrieved from https://www.justice.gov/ust/means-testing
3. Ohio State Bar Association. (2024).Bankruptcy in Ohio. Ohio State Bar Association. Retrieved from https://www.ohiobar.org/
4. U.S. Bankruptcy Court for the Northern District of Ohio. (2024).Filing for Bankruptcy in Ohio. U.S. Bankruptcy Court, Northern District of Ohio. Retrieved from https://www.ohnb.uscourts.gov/
5. U.S. Bankruptcy Court for the Southern District of Ohio. (2024).Bankruptcy Process. U.S. Bankruptcy Court, Southern District of Ohio. Retrieved from https://www.ohsb.uscourts.gov/
6. National Consumer Law Center. (2024). Bankruptcy Basics. National Consumer Law Center. Retrieved from https://www.nclc.org/
7. American Bankruptcy Institute. (2024). Ohio Bankruptcy Exemptions. American Bankruptcy Institute. Retrieved from https://www.abi.org/
8. Federal Trade Commission. (2024).How Bankruptcy Works. Federal Trade Commission. Retrieved from https://www.consumer.ftc.gov/articles/0153-how-bankruptcy-works