Chapter 7, otherwise known as “liquidation,” is generally the simplest and quickest form of bankruptcy and is available to individuals and married couples. A trustee (appointed by the court) gathers and sells your non-exempt property and uses the proceeds from the sale to pay your creditors. Most chapter 7 cases are “no-asset’ cases, which means that you do not have any non-exempt property for the trustee to sell.
Federal bankruptcy laws provide for a “means test,” which helps determine whether you are eligible to file Chapter 7 bankruptcy. This test is used to limit Chapter 7 bankruptcies to those people who truly can’t repay their debts. If your income is below the median income level for families in Ohio, based on Census Bureau statistics, you are eligible. If you make more than the median income allowed, it must be determined whether your disposable income will cover your debts. If you do not qualify for a Chapter 7 bankruptcy, another option to consider is a Chapter 13 bankruptcy.
Filing Chapter 7
A bankruptcy begins with the filing of the official petition, schedules and a statement of financial affairs with the bankruptcy court. In order to complete the bankruptcy forms, you will need to provide a list of all your creditors including the amount owed and type of debt; income information; a list of all of your property; and a detailed list of your monthly living expenses.
As soon as your bankruptcy petitions are filed, your creditors are prevented from attempting to collect on your debts through what’s called an “automatic stay.” The stay is designed to preserve your property and to stop any pending litigation.
First Meeting of Creditors
Between 30 and 45 days after you file your bankruptcy petitions, a trustee will hold the “first meeting of creditors” (also called a “341” meeting). You must be present for that meeting. The trustee will ask you questions under oath about your property and debts. Creditors can also question you on those subjects although they rarely do. Generally, the only responsibilities you have with respect to the bankruptcy after the 341 meeting is to cooperate with the trustee in providing any requested information. Creditors typically have 60 days following the 341 meeting to convince the bankruptcy court you shouldn’t be allowed to discharge your debts.
What Can I Keep?
There are many items you may keep after you file for bankruptcy. The items and amounts in this section may change in the future. Updated information can be found in the state code.
Under Ohio bankruptcy law, the following property is exempt:
- Your house, equity up to $21,625
- Motor vehicle, to $3,450 over and above the amount you owe
- Beds, bedding and clothing, no more than $11,500 in value per item
- Refrigerator and cooking unit, up to $300 each in value
- $400 in cash
- Books, musical instruments, appliances, household goods, furnishings, firearms, hunting and fishing equipment to $525 per item; jewelry to $1,350 for 1 or more items; $10,775 total
- Any professionally prescribed or medically necessary health aids
- Implements, books and tools of trade, up to $2,025 in value
- Personal injury awards, up to $20,200 (not to include pain and suffering), received during the 12 months before filing
- Alimony and child support needed for support
- Unemployment compensation, vocational rehabilitation benefits, worker’s compensation, general assistance payments and tuition credit
- A minimum of 75% of wages due for 30 days; the judge may authorize more if you are a low-income debtor
- Any other property, up to $1,075 in value
A bankruptcy does not wipe out mortgages or tax liens. The lender still has the right to foreclose if you do not pay. If you continue to pay, you will be able to keep your home. The mortgage lender does not want to own your property, it wants you to pay regularly on the loan. Foreclosure is a last resort for the lender if it concludes it can’t get the money that is owed in any other way.
If you owe money on your car, you can choose to reaffirm the debt with the lender. Under the new law, you have to “reaffirm” your car loan within 45 days after the “341 meeting.” You no longer have the option of continuing your car payments without reaffirming the loan. Once the loan is reaffirmed, if you default on your payments and the car is repossessed, you remain liable for the repossession deficiency. You also have the option to redeem the car within 45 days of the “341 meeting” by buying it from the secured creditor in a single payment for its present value.