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How to Keep Your Property Secure in Bankruptcy

You worked hard to get what you own. You don’t want to lose any of it. You’ve read that Chapter 7 is a liquidation bankruptcy. Sounds like you will lose everything, doesn’t it? You want to keep property in bankruptcy!

Relax. You will keep property in bankruptcy. Exemption laws protect most everything we own. Don’t believe websites that proclaim “Chapter 7 is a liquidation bankruptcy. They won’t really sell your your non-exempt property for the benefit of your creditors.” While technically true, most all we own is protected. Ohio’s exemption laws have recently been improved, so more of what you own is protected.

Home Property

The False Exaggerations About Loss of Property in Bankruptcy

It is a long-standing myth that you lose your home or car in bankruptcy. Like many myths, this one has its origin in fact. Long ago, when I first started to practice bankruptcy law, you could only protect $1,000 in a car. Now its $4,000. We could only protect $5,000 equity in our home. Now it’s over $132,000! So, if someone tells you that “they lost property in bankruptcy” it may be that they filed long ago. But times, and exemptions, have changed. Most will keep property in bankruptcy if they plan their exemptions properly.

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Keep Your Home and Car Secure and Safe in Bankruptcy

Our most important “big ticket” items are our cars and home. Most of the time we don’t own these “free and clear” but rather we are still paying for them. The “equity” we have in our property is protected by exemptions. Ohio has recently improved its exemptions, so Ohioans will normally keep property in bankruptcy.

If you have been a resident of Ohio for the 2.5 years prior to filing Chapter 7 or Chapter 13 bankruptcy, you will likely claim Ohio’s exemptions. But if you were a resident of another state during the the 2.5 years prior to filing, you might have to use the exemption laws of another state or even the Federal exemptions. Either way, you should be able to keep property in bankruptcy.

I file hundreds of consumer bankruptcy cases each year in Dayton and Southern Ohio generally. Very rarely do we see any reason to not keep property in bankruptcy. Keeping your cars and home is the norm when filing Chapter 7 or 13.

There is no limit, in bankruptcy law, on the number of cars or vehicles you may own and keep. The law is concerned with the amount of equity you have, and the name on the title, if a car, or the deed, if a house.

What Would Cause You to Not Keep Property in Bankruptcy?

If exemption laws protect your equity in most cases, how is it that some people end up losing property in bankruptcy? In many cases, this happens if you cannot claim an exemption. You can lose your exemptions for many reasons, fraud, lying under oath, hiding assets, etc. So, for example, if you try to hide an asset, and are later found out, you might not be allowed to claim an exemption in that property, even if you could have used an exemption of you truthfully disclosed it.

You might not be able to claim an exemption in your house, for example, if it is not in your name. Sometimes people put their homes in a trust. When they do this, the trust owns the house, and they own the trust. This destroys the ability to claim the exemption. They could lose the house if they did this and filed bankruptcy.

Another example involving a house is when a parent transfers the deed to the home to children, in advance of death.The children then want to file bankruptcy. But they “legally” own the parent’s house. It is not their residence, so they cannot apply the residence exemption to it. If they file bankruptcy, the house could be lost to the bankruptcy court.

There are other examples but family transfers account for the majority of common problems that result in loss of property in bankruptcy.

If you are considering bankruptcy, don’t transfer anything out of your name. Don’t allow any property to be put into your name. Check first with an experienced, certified bankruptcy specialist. I regularly see people do things that, as a practical matter, PREVENT them from filing bankruptcy. Or, at the very least, not permit them to keep property in bankruptcy.

The things they do are legal. But they have unexpected consequences in bankruptcy. Ask first, before taking any action, if you are even remotely thinking about a possible bankruptcy. Do this so you can keep property in bankruptcy, rather than lose it unnecessarily. A free consultation could be worth many thousands of dollars.

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