Chapter 7

Facts about filing for Chapter 7 Bankruptcy in Ohio.

Chapter 7 debt protection is designed to provide individuals relief from those credit obligations not secured by real or personal property (known as “unsecured debt”). This relief is provided in the form of a legal discharge of your unsecured debts. The discharge eliminates your unsecured debt such as credit card debt, medical bills, some judgments, and many other common consumer debts. Under Chapter 7, you may keep your home and car provided you do not have any non-exempt equity and you agree to continue to make your payments. You may also elect to exercise your right to redeem your car for its fair market value which effectively replaces your present car loan with a new car loan in the amount of your car’s book value. The difference between the loans is discharged (legally eliminated).

How does Chapter 7 bankruptcy work?

In an Ohio bankruptcy case under Chapter 7, you file a petition asking the court to discharge your debts. The basic idea in a chapter 7 bankruptcy is to wipe out (discharge) your debts in exchange for your giving up property, except for “exempt” property, which the law allows you to keep. In most cases, your property will be exempt. Property which is not exempt (non-exempt equity) may be sold, and the proceeds are distributed to creditors. For example, each individual has a $132,900.00 homestead exemption; therefore, before a debtor’s home will be sold in Chapter 7, the debtor’s equity in his or her home must exceed $132,900.00 in an amount sufficient to cover the cost of said sale. There is almost no chance that, due to equity in their home, they may lose their home in Chapter 7. A debtor’s right to keep their home in Chapter 7 is not absolute, but most debtors can keep their home because their equity in the home does not sufficiently exceed their exemption.

Generally, you may keep your car through a reaffirmation agreement. A Chapter 7 reaffirmation agreement is an agreement between debtor(s) and their creditor(s) which allow the debtor to keep collateral (home or car) in exchange for timely payments. Under a reaffirmation agreement, you essentially agree to continue to make your regular monthly payments to your car lender and/or mortgage company. As a debtor, you have certain rights pertaining to reaffirmation agreements which you should more fully discuss with your attorney.

You may also keep your car by exercising your right of redemption. As a Chapter 7 debtor, you have the right to redeem your car for its fair market value. For relatively new cars with low mileage, financing may be arranged to provide the lump sum payment to your car lender in an amount equal to the fair marker value of the car. Many times, by redeeming the car, you will lower your pay off on the vehicle and also lower your monthly car payment. As a result, for those debtors who qualify, it presents a very attractive option. The difference between the old loan and the replacement redemption loan is discharged.

If you want to keep property like a home or a car and are considerably behind on the payments, a Chapter 7 case probably will not be the right choice for you. That is because Chapter 7 bankruptcy does not eliminate the right of mortgage holders or car loan creditors to take your property to cover your debt. At the same time, most debtors do not have the requisite amount to bring their obligation current prior to reaffirmation.