Exemptions in bankruptcy law are the same as in tax law. When you do your taxes exempt income is what you get to keep. Exemptions in bankruptcy are the property you get to keep from your creditors. Simply stated it is that portion of the free and clear value of each asset that state law allows you to keep. This law applies to your creditors in state court as well as to the trustees in bankruptcy court. The exemption law applies in both chapter 7 and chapter 13 cases.
Let’s say you have a car with a loan. The exemptions apply to the positive portion of the value of the car after you subtract out the loan balance. If you have a $5,000 car with a $3,000 loan you have $2,000 equity in the vehicle. The exemptions apply to the $2,000. It works this way with everything you own.
In April, 2009, Ohio brought their exemption law into the twentieth century. Unfortunately everyone else is in the twenty-first century. The law contains many exemptions. This listing contains adjustments and increases effective April 1, 2013. I want to talk with you about what I consider the 10 most important:
1. Homestead exemption. The Ohio bankruptcy exemption in your residence is $132,900 for each of you on the title. A law change expanded this exemption over 500% at the end of March, 2013. On April 1 the cost of living adjustment took it to the present level. Ohio is now one of the leaders in protecting the equity in your home.
2. Motor Vehicle. $3,674 in one motor vehicle. It used to be $1,000.
3. Cash, bank deposits, money due. $450. Think this is a typo? It’s not.
4. Household Goods and Furnishings $12,250. This is a big increase. It really allows clients to honestly evaluate their possessions since the bankruptcy code requires “replacement value”. $575 in any single household item. $1,550 aggregate interest in one or more items of jewelry
5. Tools of profession, trade or business $2,325. This one is a joke. If you are a mechanic and have your own tools this isn’t enough to cover the tool box. In my own office it would not cover the value of my waiting room furniture. The trade or profession they must have been thinking about is on fantasy island.
6. Earned Income Credit From Tax Refund $ unlimited. This is a new and great exemption. In past years this money which was intended for the benefit of single low income working parents was gobbled up by trustees less the exemption in #3 and paid out to creditors. This exemption keeps those funds where the federal government intended them to be.
7. IRA, Rollover and Roth IRA. These were not exempt in Ohio for a long time. Imagine, corporate and government employees had exempt pensions. Self employed and those without pensions had their retirement money taken if they filed bankruptcy. Talk about injustice! The United States Supreme Court fixed this in a decision. The Ohio legislature finally followed along.
8. Personal Injury Settlement $23,000. Ohio bankruptcy exemptions only protected $4,000 before 2009. Totally not enough for modern injury claims.
9. Anything exempted by federal law. This generally includes pension, profit sharing, 401k. Things covered under ERISSA. State law exempts various public employee pensions.
10. The wild card. $1,225. You can apply the wild card amount to any asset class that you need more equity protection up to the maximum. The tragedy here is that when the Ohio bankruptcy exemptions law was being debated up until its final passage the wild card was $10,000. That is a big reason that some of the exemptions I talked about here are so low. At the end they lowered the wild card without adjusting the more specific items upward.
Each of these Ohio bankruptcy exemptions are per individual. If you file a joint bankruptcy, the jointly owned household goods have an aggregate exemption of $23,050.
The Ohio bankruptcy exemption law also includes a cost of living adjustment in 3 year increments starting April, 2010. Maybe someday Ohio bankruptcy exemptions will realistically address the needs of all Ohioans.
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