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 $5,000.00
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
$5,000.00 in an amount sufficient to cover the cost of said sale. As a
result, if a
debtor has a considerable
amount of equity in their home they may lose their home in Chapter 7 and,
therefore, under such circumstances, you are better suited for a Chapter
13 debt adjustment
plan. Therefore, 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. |
Chapter 7 and Chapter 13 Debt Protection in Ohio
Ohio Chapter 7 and Chapter 13 are forms of personal bankruptcy providing a legal process whereby a person who cannot meet his or her debt obligations can either adjust their debt or eliminate it altogether. The right to file for bankruptcy in Ohio is provided by federal law, and all Ohio bankruptcy cases are handled in federal court. While there are four (4) major types of bankruptcy, the clear majority of individuals and married couples in Ohio file Chapter 7 or Chapter 13 bankruptcy. Under either chapter, filing a bankruptcy petition in Ohio immediately stops all of your creditors from seeking to collect debts from you, at least until your debts are sorted out according to the law. |
