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Ohio Homestead Exemption and Bankruptcy



Protecting the Equity in your Home When Filing for Chapter 7 Bankruptcy in Ohio


In late 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).


Protecting the equity in your home when filing bankruptcy using the Ohio Homestead Exemption

The New Ohio Homestead Exemption Can Protect $132,900 of Your Home Equity

This new Ohio Homestead Exemption has an immediate impact for debtors who file for Chapter 7 bankruptcy protection in Ohio Bankruptcy Court. Debtors who file a chapter 7 case after April 1, 2013, and who own a personal residence, can now protect $132,900 of equity in their personal residence.


Once a debtor qualifies for chapter 7 bankruptcy protection, the trustee’s job is to evaluate whether the debtor has equity in his or her assets. The way in which a debtor protects equity in an asset he or she wishes to keep is to look at state law (and in some cases federal law). If a debtor has too much equity in an asset that cannot be protected by state law exemptions, the chapter 7 trustee can seek to sell that asset to repay some or all of the debtor’s unsecured creditors. The increased Ohio Homestead Exemption protects more equity in the debtor’s personal residence, thus permitting more debtors to retain their personal residence.


Comparison Example scenario in Chapter 7 Bankruptcy:

Let’s assume 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

Under prior Ohio Homestead Exemption law ($21,625), there would be approximately $80,000 of unprotected equity. This meant that the chapter 7 trustee would seek to sell the debtor’s personal residence, satisfy the existing mortgages, 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.


However, under the new increased Ohio Homestead Exemption ($132,900), the debtor would be able to protect $100,000 or 100% of the equity in the above example. The debtor would not have to avoid filing a chapter 7 bankruptcy case; and the debtor would be able to keep his or her personal residence in the chapter 7 bankruptcy.


Current Ohio Homestead Exemption Example in Chapter 7 Bankruptcy

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.


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 personal residence 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 Ch 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.


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Sheppard Law Offices - Columbus

Sheppard Law Offices

The Columbus, Ohio bankruptcy debt relief and taxation law office of Sheppard Law Offices, LPA is conveniently located just inside I-270 off of Cleveland Ave. Our offices provide a short drive from throughout Central Ohio including counties of Franklin, Delaware, Knox, Marion, Licking, & Fairfield. We regularly serve  Debt  & Tax needs of clients from  Columbus, Westerville, Bexley, Dublin, Sunbury, Delaware, Fredericktown, Johnstown, Centerberg, New Albany, Gahanna, Pickerington, Grandview, Upper Arlington, Clintonville, Groveport, Pickerington, Pataskala, Reynoldsburg, Groveport, Lewis Center, Worthington, Granville, the Short North, Hilliard, Plain City, Grove City, Newark, Mt. Vernon, Canal Winchester, and Lancaster.

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