What Assets Can You Keep in a Bankruptcy Filing?
Interviewer: You said that we started talking about assets in a bankruptcy. Do you have to give up every one of your assets? What if you have a house, a car? What are you allowed to keep? What do you have to sell off when you file bankruptcy?
Adam: Well, they are going to look at a couple of different things. One factor is if there is any equity in the asset itself. If you desire to keep, say a car, and there is a car loan, you are just going to have to sign a reaffirmation agreement with the lender.
Ohio’s Homestead Exemption
As far as your home, there is the Homestead Exemption in Ohio which means that they can’t take over $22,500 of equity from the home. It is basically forgiveness. If they have more debt on the house, then it won’t be touchable.
Interviewer: That’s good news for homeowners. Let’s say I have $50,000 in credit card debt and I own a home and the home is worth $100,000 and I owe $80,000 on it, I can still file bankruptcy in that case potentially get rid of the credit card debt? However, I don’t have to sell my home, because I don’t have more than $22,500 in equity in it, is that right?
Adam: Yes, that is right and that is a good example to illustrate the Homestead Exemption.
If You File for Bankruptcy, Can You Still Own a Car?
Interviewer: What about the cars you may possess? You mentioned that if you buy a car and you owe as much as it is worth. What about equity in cars? Is there a car exemption? With a certain amount of equity and you don’t have to sell it?
Adam: They’ll look to see how much equity may be in the value of the car. There is no set number on it. They are going to look at it and if there were a significant amount of equity in the car, then it would be attachable.
What Will Happen to your Credit Rating After You File for Bankruptcy?
Most people are concerned about having to go out and purchasing a new car and getting financing after they have filed Chapter 7. This is because their credit rating, for at least a short time, won’t be strong right after the actual Chapter is filed and closed.
Interviewer: Well, how bad will the rating be? I know there are myths out there that once you file bankruptcy your credit is dead for ten years. Is that true or not? What is the reality of it?
Adam: That is not really accurate. You are prohibited from filing again for bankruptcy for at least ten years. During that time, anybody who would lend you money has no worries as long as they don’t lend it outside the period that you can re-file for bankruptcy.
It Is Better to Purchase A Car After Filing for Bankruptcy, Not Before
Interviewer: Is that for both the Chapter 7 and Chapter 13 or is it different from where you are barred from filing again for a certain time?
Adam: I believe it is the same statute on both. If you are looking to purchase a car, most car dealerships know what they have as far as the availability of lenders. They will usually advise potential buyers to purchase autos after filing. This is because they have lenders that will give you credit afterwards, but they won’t do it before you file for bankruptcy.
Interviewer: I wasn’t aware of that. You’re saying, perversely, when someone files bankruptcy because they can’t file it again for some period of time, their credit may actually be better than someone who hasn’t filed, but who has horrible credit because of that reason? You are saying their credit may actually be better after they file?
Adam: Right, because they’re prohibited from filing again for ten years. What’s the harm in lending them money?
By Adam Hunt