Bankruptcy law is a federal law. The law seeks to relieve debtors of their debts while equally dividing the debtor’s non-exempt property among creditors.
Bankruptcy cases are heard in federal bankruptcy courts. Federal district courts or the Board of Bankruptcy Appeals have jurisdiction to hear appeals.
A statutory trustee in a bankruptcy case oversees the bankruptcy process. However, the role and status of the trustee is related to the chapter of the law under which the bankruptcy case is based, and different chapters provide for different roles of the trustee.
Chapters of Bankruptcy Code Commonly Used by Consumers
Chapter 7 – Liquidation
Chapter Seven provides an imperative liquidation of the debtor’s assets. Debtors exchange their non-exempt property for forgiveness. A trustee appointed in a Chapter 7 case will collect and sell all of the debtor’s non-exempt property and use the proceeds of the sale to distribute pro rata to the creditors according to their priorities under the bankruptcy law. In this way, the debtor’s personal obligations will be released. In 2005, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). The Act significantly increases the difficulty for debtors seeking Chapter 7 debt forgiveness. The following four are the most important:
- Lawyer certificate
- Pre-Bankruptcy Credit Counseling
- Method test
- Exit counseling
Chapter 13 – Adjustment of Debts
Chapter Thirteen provides income-earning individuals with the ability to create a three- to five-year repayment plan. The debtor can create a plan under which the debtor will repay a certain percentage of the debt and the remainder will be forgiven, but only if they have paid out all of their disposable income within the time specified in the plan. Chapter 13 is very popular these days because debtors can extend their home mortgage arrears for years while keeping their existing monthly payments without incurring additional interest and penalties. In this way, debtors can keep their homes. An important feature of Chapter 13 is that the debtor must have less than $307,675 in unsecured liabilities and less than $922,975 in secured liabilities.
A bankruptcy filing creates an asset list that includes almost all of the debtor’s assets as of the filing date. The bankruptcy law defines these assets broadly so that it also includes assets that the debtor does not currently own, such as an estate that the debtor inherits within six months of filing a bankruptcy petition.
Section 541(b) of the Bankruptcy Code provides a list of assets that does not have to be included in the bankruptcy estate, which includes assets that the debtor holds for others, retirement funds, and funds in education accounts. Although under the bankruptcy law, debtors can choose federal exemption or state exemption, Ohio expressly stipulates that debtors residing in Ohio cannot use federal exemption.
Automatic Stop (Automatic Stay)
A bankruptcy filing will automatically stay any action against the debtor or the estate. However, some waivers can continue despite bankruptcy. For example, criminal proceedings, child support proceedings, and some set-off proceedings.
The following events will terminate the automatic stop:
- Granted to lift the stop,
- The asset ceases to be part of the bankruptcy estate,
- The case is terminated or not accepted,
- Granted debt forgiveness, or
- Previous bankruptcy filings required a final stay.
Not only that, but relief from an automatic stay can be obtained from a lawsuit.
Ohio Exemption Laws
In 2008, Ohio’s exemption laws were amended. Ohio has the Property Owner Opinion Rule, which states that a property owner can testify about the fair market value of the property. Remember, the exemption only applies to net worth. Here are some major exemptions:
- Residential Exemption: $20,200
- Car: $3,225
- Cash: $400
- Furniture: $10,775
- Jewelry: $1,350
- Professional Tools: $2,025
- Health supplements: all health supplements (prescribed by a professional doctor)
- Workers’ Compensation, Unemployment Benefits, Disability Benefits, and Social Security: Full Exemption
- Retirement Accounts: Only necessary living expenses are exempt. Courts will consider many factual factors in determining the amount.
- Child or Spouse Living Expenses: Only necessary living expenses are exempt.
- Ordinary Income: Determined by salary payment period or 75% of disposable income.
- Tax refunds: Income tax refunds and child tax refunds are exempt.
Judgment Proof Debtors
A debtor is judgment proof when the debtor has no non-exempt property or income. Therefore, such debtors do not need to file for bankruptcy.
Lei Jiang Law Firm provides bankruptcy and other commercial and corporate legal services. Please contact us for more detailed information and specific analysis.