In Ohio, the Exemption on Equity When Filing a Chapter 7 Bankruptcy Has Increased
Interviewer: Today we are discussing bankruptcy and homestead exemptions with bankruptcy attorney Adam Hunt. The law has changed recently for homestead exemptions in Ohio.
Adam: Yes, that is correct. Previously I believe the law was set where a single individual could offer bankruptcy and the exemption was only about $22,500. Since then, each individual can now file a Chapter 7 bankruptcy proceeding and have an exemption on any equity up to $125,000 per individual.
The Exemption to Preserve Equity Has Doubled for Married Couples
A married couple could get up to $250,000. You can have a substantial amount of equity in your home and preserve up to a quarter million dollars if we’re talking about a married couple.
Under the Previous Law, Couples Having Equity Exceeding $22,000 Would Likely Result in a Forfeiture of Home Ownership
Interviewer: That’s a drastic change. Normally in a chapter 7 bankruptcy, because the house is secured debt, it could be repossessed and resold. If you had more than $22,000 in equity, the bankruptcy court could force the house to be sold they can collect that equity?
By Increasing the Amount of Equity Exempted, You Can Preserve Your Home Ownership
Adam: They could do that or a force the person to forfeit an asset that equivalent value to whatever value they had in excess of the equity. Assets subject to forfeiture include part of a bank account and tax returns, different things.
The Exemption for a Single Person Has Increased to $125,000; for Married Couples It Has Increased to $250,000
Interviewer: Now it’s up to $125,000 for single and $250,000 for married.
You mentioned if you had equity exceeding the exemption, the bankruptcy court would look to take from other assets to satisfy creditors?
Adam: Yes, they would seize an equivalent asset. One of the most common assets they look at is seizing a tax refund.
What Will the Bankruptcy Court do if Your Equity Is Close to the Limit?
Interviewer: What if you’re close to the limit, for example, what if you have a 100,000 in equity? Would the bankruptcy court say, “You have so much equity, we are going to look at other assets in a Chapter 7 filing.”
Most Bankruptcy Trustees Will Follow What the Auditor Lists as the Tax Valuation on Your Home
Adam: Part of it’s going to depend on who is appointed as your bankruptcy trustee. For the most part, the trustees are willing to accept what the auditor lists as the tax valuation on the home, which could be different from what a home would be appraised at if an appraiser went out and actually examined the home.
It Is More Advantageous for the Homeowner if the Bankruptcy Trustee Accepts the Auditor’s Value
Typically, the auditors valuation tend to be lower and most trustees are willing to accept whatever that value is, as opposed to going out and having an appraiser and hiring an appraiser. If you’re close, they’re probably going to let you claim the exemption.
Claiming the Homestead Exemption Doesn’t Mean You Will Forfeit Other Assets You Wanted to Maintain
Interviewer: Does that mean if you have accrued a lot of equity in your house again, will that make the bankruptcy court say, “You have quite a bit of equity in the house, so we’re going to more aggressively go after other assets in the bankruptcy estate.”
The Wild Card Exemption
Adam: Not necessarily. There is another beneficial exemption of $1,000, which is known as the wild card exemption. It could be applied to different assets, for example, even say a vehicle, or if you have an insurance policy that has a cash value on it.
You May Be Able to Preserve More Assets Than You Would Have Originally Thought When Filing a Chapter 7 Bankruptcy
You could use that wild card to your advantage. Other factors the bankruptcy trustee may look at are how many family members are in the home. They will see if you have paid out of pocket funding for medical care or insurance. People considering filing bankruptcy should be reassured that are other factors that can come into play to help them preserve some assets.
By Adam Hunt