Overviews of Various Chapters of the Bankruptcy Code

The Bankruptcy Code, or law,  provides individuals with the right to file under three different Chapters of the Bankruptcy Code: Chapter 7, Chapter 13, and Chapter 11.

A Chapter 7 case is referred to as a liquidation case.
 
A Chapter 13 case is referred to as a wage earners reorganization case.
 
A Chapter 11 case is a reorganization for debtors who have too much debt to qualify for a Chapter 13 case.

                                                                                     Chapter 7

In Chapter 7 cases, essentially, a debtor offers to surrender his or her nonexempt assets in exchange for a discharge of his or her dischargeable debts. Mr. Forbes provides a basic explanation of exemptions and non-dischargeable debts below. A Chapter 7 case is usually completed within 4-6 months of filing and does not require payments during the case. Obviously, to the extent a debtor has nonexempt assets, he must be prepared to surrender those assets when filing a Chapter 7 case.

Chapter 13

In a Chapter 13 case, a debtor tries to reorganize his debt in order to make his debt manageable. Essentially, the debtor proposes a plan wherein he demonstrates how his debts will be handled. The creditors and the Chapter 13 Trustee have the right to object to that plan. After the plan is confirmed, either by agreement or by the Court deciding that the plan is appropriate, the debtor pays a certain amount each month to the Trustee who will then pay the debts which the law requires him to pay. Normally these debts are unsecured debts and some purchase money secured debts (if, for example, you borrow money to obtain car, that is a purchase money secured debt). The debtor then pays his payments for 3-5 years and at the end of that time period any remaining debt is discharged in bankruptcy. Based on the debtors income and assets, all or part of the debt may be paid in a Chapter 13 plan.

Chapter 11

Chapter 11, as far as individuals are concerned, is a reorganization for wealthier debtors. If a debtor has too much debt to qualify for Chapter 13, an individual debtor must reorganize under Chapter 11.  Chapter 11 is also available for businesses, but that discussion is outside the scope of the information necessary to assist the usual Chapter 7 or Chapter 13 debtor.

In analyzing any potential bankruptcy filing, the debtor and the debtor’s attorney must review the amount of secured and unsecured debt. Secured debt can be described as debt which is attached to a particluar asset which permits a creditor to take away an item if the debtor doesn’t pay for it. For example, a car loan is a secured debt. If you don’t make a car payment, the creditor can repossess the car. Similarly, a house mortgage is a secured debt. If you don’t pay your mortgage, the creditor can foreclose and take away the house. Credit card bills and medical bills are an example of unsecured debts.

                                                                                 Means Test

In the 2005 Bankruptcy Reform Act, Congress instituted a "means test". The means test is a mathematical formula which determines the debtors eligibility for Chapter 7 and the minimum required payment for Chapter 13. Although the means test is somewhat complex, some issues are simple. For example, if a debtor has less income than the median income for his household size in his state, the debtor automatically qualifies for Chapter 7. In most cases, debtor’s attorney will have to do at least a cursory means test analysis to determine whether or not the debtor is qualified for Chapter 7. 

                                                                                 Exemptions

Listed below, you will find a detailed summary of Ohio Exemptions. Generally speaking, in Ohio, a person is entitled to an exemption for $20,000 for real estate in which he or she resides, for $10,000 in household goods, for over $3000 of equity in a motor vehicle, and for $1,000 in miscellaneous items, as well as, $400 in a bank account. Obviously, in putting together a bankruptcy, it is important to Cooper & Forbes to determine whether or not all of the debtors assets are exempt or if any of them are at risk.

                                                               Nondischargeable and Priority Debts

There are several kinds of debts which are nondischargeable under the bankruptcy code. In other words, you cannot get out of these debts by filing a bankruptcy. Some of these require court action to be declared nondischargeable, some of them do not. Common nondischargeable debts are as follows: most taxes, debts incurred as a result of fraud, debts for spousal or child support, debts arising out of willful and wanton conduct or thievery, debts for student loans, debts for injuries caused while driving while intoxicated, and debts resulting from divorce which are not support debts. In determining whether to file a bankruptcy, Cooper & Forbes will assist you in determining whether or not you have nondischargeaable debts.

Automatic Stay

The automatic stay is a very powerful tool for debtors to use when they declare bankruptcy. The moment the bankruptcy is filed, the collection actions and other actions of creditors must stop. For example, when a bankruptcy is filed, a sheriff’s sale is cancelled. When a bankruptcy is filed, garnishments stop. When a bankruptcy is filed collection calls stop. The idea behind the automatic stay is that the bankruptcy court, not various other people, should determine how to handle the debtors debt and asset situation.

 Brief Summary of Ohio Exemptions

Excerpts taken from § 2329.66. Exempted interests and rights

Every person who is domiciled in this state may hold property exempt from execution, garnishment, attachment, or sale to satisfy a judgment or order, as follows:

REAL ESTATE not to exceed twenty thousand two hundred dollars ($20,200), in the exempted property.

ONE VEHICLE not to exceed three thousand two hundred twenty-five dollars ($3,255)

CASH not to exceed four hundred dollars ($400)

HOUSEHOLD GOODS, FURNISHINGS, WEARING APPAREL, APPLIANCES, BOOKS not to exceed five hundred twenty-five dollars ($525) in any particular item or ten thousand seven hundred seventy-five dollars ($10,775) in aggregate value

JEWELRY not to exceed one thousand three hundred fifty dollars ($1,350), held primarily for the personal, family, or household use of the person or any of the person's dependents.

TOOLS OF TRADE  not to exceed an aggregate of two thousand twenty-five dollars ($2,025)

MISCELLANEOUS PROPERTY not to exceed one thousand seventy-five dollars ($1,075), except that division (A)(18) of this section applies only in bankruptcy proceedings

EXEMPTIONS FOR OTHER ITEMS OF PROPERTY 

The person's interest in a beneficiary fund set apart, appropriated, or paid by a benevolent association or society, as exempted by section 2329.63 of the Revised Code;

The person's interest in contracts of life or endowment insurance or annuities, as exempted by section 3911.10 of the Revised Code;

The person's interest in a policy of group insurance or the proceeds of a policy of group insurance, as exempted by section 3917.05 of the Revised Code;

The person's interest in money, benefits, charity, relief, or aid to be paid, provided, or rendered by a fraternal benefit society, as exempted by section 3921.18 of the Revised Code;

The person's interest in the portion of benefits under policies of sickness and accident insurance and in lump sum payments for dismemberment and other losses insured under those policies, as exempted by section 3923.19 of the Revised Code.

The person's professionally prescribed or medically necessary health aids;

The person's interest in a burial lot, including, but not limited to, exemptions under section 517.09 or 1721.07 of the Revised Code;

The person's interest in the following:

(a) Moneys paid or payable for living maintenance or rights, as exempted by section 3304.19 of the Revised Code;

(b) Workers' compensation, as exempted by section 4123.67 of the Revised Code;

(c) Unemployment compensation benefits, as exempted by section 4141.32 of the Revised Code;

(d) Cash assistance payments under the Ohio works first program, as exempted by section 5107.75 of the Revised Code;

(e) Benefits and services under the prevention, retention, and contingency program, as exempted by section 5108.08 of the Revised Code;

(f) Disability financial assistance payments, as exempted by section 5115.06 of the Revised Code;

(g) Payments under section 24 or 32 of the "Internal Revenue Code of 1986," 100 Stat. 2085, 26 U.S.C. 1, as amended.

This summary of Ohio exemptions is provided for general information only and is not a complete listing of allowable exemptions.  For more information or for a more detailed explanation of Ohio exemptions, please contact our office.

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Bankruptcy Relief under the Bankruptcy Code.

The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult an attorney for individual advice regarding your own situation.