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Late in 2012, the Ohio legislature passed Ohio House Bill 479, which provided for several changes to protect assets, one of which increased the Ohio Homestead Exemption from $21,625 to $132,900 (effective April 1, 2013).
This Ohio Homestead Exemption has a significant impact for debtors who are filing Chapter 7 bankruptcy protection in the Bankruptcy Courts of Ohio. Debtors who file for chapter 7 bankruptcy in Ohio as of April 1, 2013, and who own a personal residence, can now protect $132,900 of equity in their personal residence.
Once a debtor qualifies to file a chapter 7 bankruptcy case, the duty of the trustee is to evaluate whether the debtor has equity in his or her assets. Ohio and Federal law does allow the debtor exemptions in order to protect some or all of the value of their property. If a debtor has too much equity in an asset, thus the asset cannot be fully protected by bankruptcy exemptions, the chapter 7 trustee may seek to sell that asset to make payment to the creditors. The increased Ohio Homestead Exemption protects substantially more equity in the debtor’s personal residence, thus permitting more debtors to retain their personal residence or to retain greater equity from the sale of their home in a bankruptcy.
Assuming a debtor’s personal residence has a fair market value of $250,000 and the total payoff balance of all mortgages is $150,000. The equity in the debtor’s personal residence is $100,000.
Old vs. New Ohio Homestead Exemption Example:
Under prior Ohio Homestead Exemption law ($21,625), there would be almost $80,000 of unprotected equity in the property. This meant that the chapter 7 trustee would seek to sell the debtor’s personal residence, satisfy existing mortgages, and pay the debtor (possibly up to $21,625), and pay the remaining proceeds to unsecured creditors. Knowing that this outcome would be possible may have discouraged a debtor from filing a chapter 7 bankruptcy, due to the likely loss of their home or equity.
Under the New increased Ohio Homestead Exemption which protects $132,900 of an individuals equity, the debtor would be able to protect the full amount of the equity up to $132,900, therefore the $100,000 of equity in the above example would be fully protected. Therefore, the home owner would be able to keep their personal residence in the chapter 7 bankruptcy.
New Ohio Homestead Exemption Example 2
In this example we assume that a debtor’s personal residence has a fair market value of $400,000 and the total payoff balance of all mortgages is $200,000. We must also assume that the debtor is current on all mortgage payments. Therefore, the equity in the debtor’s personal residence is $200,000.
Suppose the homeowner is filing a chapter 7 bankruptcy case as an individual: Since there will be $67,100 ($200,000 minus $132,900) of unprotected equity in the personal residence, the chapter 7 trustee would seek to sell the debtor’s personal residence. In this case, the chapter 7 trustee would first satisfy the existing mortgages, then pay the debtor (possibly up to $132,900), and then finally pay the remaining proceeds to unsecured creditors.
New Ohio Homestead Exemption Married Couple Example
Now suppose the homeowner is a married couple filing jointly for chapter 7 bankruptcy: The $132,900 Ohio homestead exemption will apply for each spouse for a total of $265,800 in equity protection. Therefore, since the total equity in the above example is only $200,000, the married couple will be able to keep their home.
Suppose a debtor is behind in his or her mortgage payments and will not be able to catch up by the time he or she files for Chapter 7 Bankruptcy: If the debtor chooses to proceed with filing the Chapter 7 Bankruptcy, he or she will have to surrender the personal residence. He or she cannot claim the homestead exemption because he or she must treat the mortgages as unsecured debts. Thus, the debtor would only receive any portion of the sale proceeds of the personal residence after all unsecured creditors are satisfied. In this case we would review the larger picture and work with the debtor to determine if filing for Chapter 7 bankruptcy or another method of debt relief may be more beneficial, including the possible outcomes of filing for Chapter 13 Bankruptcy.
The above examples are possible scenarios and potential results, however as each set of circumstances is different you should speak with a qualified Ohio Bankruptcy Attorney to discuss your specific situation and review any additional exemptions that you may qualify for.
Sheppard Law Offices
Canton, Ohio Office
Belden Village Tower, 200
Canton, Ohio 44718
Tel: (330) 409-2876
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2600 Tiller Lane, Suite A
Columbus, Ohio 43231
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Newark, Ohio 43055
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Mt. Vernon, Ohio 43050
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Sheppard Law Offices, LPA is conveniently located and serving chapter 7 and chapter 13 bankruptcy clients in Canton, Ohio. Our office is a short drive from throughout Stark, Tuscarawas, and Summit Counties. We regularly provide debt relief solutions to clients from Akron, Canton, North Canton, Massillon, Dover, New Philadelphia, Alliance, Navarre, Strasburg, Ballivor, Jackson Township, Canal Fulton, Barberton, Greenlawn, Medina, Wooster, Orrville, Dalton, Minerva, Ashland, Wadsworth, Carrollton, Dundee, Millersburg, Hartville, Doylestown, Green, Uniontown, Salem, Columbiana, Uniontown, and throughout Ohio.