Bankruptcy Laws in Ohio

What can one say about Ohio? Cleveland rocks. And Akron produced LeBron James. Really though, Ohio is a blue-collar state with a lot of true red-blooded Americans giving their all to live the American dream. And sometimes the American dream turns out to be a passing nightmare, a financial quicksand that sucks you dry with ever-increasing debt, interest, late fees, and debt collector harassment. Many people, facing this predicament, decide to file for bankruptcy and get a fresh financial start. 

If you do file, almost every rule is governed by a clear set of federal laws that apply in every state. Except, of course, the rules that govern whether you are eligible to file and what property you may get to keep – the rules that matter most to the person who is actually filing. Those rules are set by state law. So, without further ado, let’s take a quick look at Ohio’s special rules for eligibility and property exemptions (the stuff you get to keep).

Most Bankruptcy Rules Are Set by Federal Law Except Eligibility and Exemptions

For the most part, a bankruptcy in Ohio looks very much like bankruptcy in California. This is because most rules are set by the U.S. code — the federal laws that govern everything from election laws to federal criminal offenses to bankruptcy. But, likely due to the different cost of living and priorities of state governments, a few rules are left to state lawmakers. These rules determine whether you are eligible to file and how much property you get to keep. And while some states give you a choice between their local special rules and a default set of federal rules —letting you pick whichever ones benefit you the most – Ohio is one of about 30 states that made their own rules and stick to them. While this simplifies bankruptcy filings for Ohio residents, it certainly takes away a lot of flexibility that citizens of other states, such as New York and New Jersey, have in choosing which rules benefit them the most.

Ohio’s Means Test

Most consumers file under Chapter 7, the bankruptcy filing that allows you to escape most of your debt after your excess assets are sold. However, in order to use Chapter 7, you have to pass the means test first. This means test consists of two parts: a simple income threshold and a disposable monthly income test.

For the income test, you are eligible to file in Ohio if your household income is below the median household income for the state. As of May 2022, the figure was $54,877 for a single filer and a greater amount for families. If your income is below the threshold, you pass the test – Chapter 7 is available to you.

If your income is higher than the threshold, then the second element of the means test comes into play: the second test is a review of your income over the past six months to determine your monthly disposable income. After paying for necessary living expenses such as housing and food, disposable income is the amount of money that remains. If your disposable income was zero or close to zero, you may qualify for Chapter 7 bankruptcy. Before spending money and time on the filing process, you should consult with an attorney to verify your eligibility.

Ohio Bankruptcy Property Exemptions

The general concept of a Chapter 7 filing is that you have to sell off your excess assets and the revenue from that sale will be given to your creditors. The remaining debt is then discharged and you are given a fresh start. What determines excess assets? In Ohio, the state lists numerous categories of assets, with limits on their values, that you can protect as “exempt” from liquidation during bankruptcy.

Homestead Exemption

What is your most important asset? For most people, it is their home. Not only is it usually your most valuable asset, and it becomes more valuable over time, but it is where you lay your head to rest at the end of the day. Fortunately, Ohio provides a very generous exemption for your primary residence: $145,425 of equity. Remember that equity means the value of the home minus what you still owe on your mortgage. And if you are married, and filing a joint bankruptcy, you can protect double that amount, which means you can keep quite a lot of houses in Ohio.

Automobile Exemption

Ohio, unlike some cruel states, also has an exemption for your motor vehicle, allowing you to get to and from work. This exemption is for up to $4,000 in equity: if you have a car that is worth that much or less (after subtracting what you owe on the car), you can exempt it from liquidation and keep it as part of your bankruptcy filing. Keep in mind that if you owe on the car, and you decide to keep it, you will have to continue making payments on it and will still owe on the vehicle after filing for bankruptcy.

Cash and Personal Property Exemptions

Ohio maintains a very long list of very specific categories, each with value limits on the property, that qualify as personal property exemptions. For example, you can protect up to $500 in cash. You can also save jewelry, up to $1,700. There is also an exemption for up to $2,025 in the value of books and tools of your trade or occupation. And more broadly, you can protect up to $13,400 in household goods, including furniture and appliances, though each item must be worth $625 or less.

Wildcard Exemption

Do you have a little something special that doesn’t fit neatly into any of the aforementioned categories, or goes beyond the typical limits? You also get one wildcard, a “get out of bankruptcy free” card, that allows you to protect further assets up to $1,325 or to add them to any of Ohio’s explicitly named categories (like personal property) to exceed the value cap for that category.

Wages, Cash, and Pensions

If you are retired or near retirement, fear not: most retirement accounts are exempt from bankruptcy. This includes defined benefit pension plans, 401(k) accounts, 403B accounts, most IRA plans, and most profit-sharing plans. In addition, public employees, police officers, and firefighters’ pensions are protected, as are death benefits for public safety officers.

As always, since retirement plans may vary greatly depending on the employer, and your ongoing income is vital to your financial recovery post-filing, discuss your pension or retirement accounts with a bankruptcy attorney before filing and assuming one or the other set of exemptions will protect it.

Exemptions are Complex: Get Professional Help

Maximizing your exemptions and protecting as much of your property as possible is probably the trickiest part of filing for bankruptcy. This is where expert advice from a bankruptcy attorney can really pay off — your attorney can help you maximize the amount of exempt property and set you up for a strong financial future after filing. For expert advice, schedule a consultation with one of our network attorneys.