Who is Bankruptcy For?
In the height of the 1930's depression, when many people in the nation were looking for a "fresh start" the Supreme Court has explained the purpose of bankruptcy this way:
This Court has certainly acknowledged that a central purpose of the Code is to provide a procedure by which certain insolvent debtors can reorder their affairs, make peace with their creditors, and enjoy "a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preëxisting debt." Local Loan Co. v. Hunt, 292 U. S. 234, 244 (1934). But in the same breath that we have invoked this "fresh start" policy, we have been careful to explain that the Act limits the opportunity for a completely unencumbered new beginning to the "honest but unfortunate debtor." Ibid.
The notion of the "honest but unfortunate debtor" is central to bankruptcy jurisprudence
As the Supreme Court summarized:
The statutory provisions governing nondischargeability reflect a congressional decision to exclude from the general policy of discharge certain categories of debts—such as child support, alimony, and certain unpaid educational loans and taxes, as well as liabilities for fraud. Congress evidently concluded that the creditors' interest in recovering full payment of debts in these categories outweighed the debtors' interest in a complete fresh start.
-Grogan v. Garner, 498 U.S. 279, 286, 287, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991). See also Marrama v. Citizens Bank of Massachusetts, 549 US 365 (2007)
First, the "Honest" Part:
Some kinds of debts CAN'T be wiped out, including:
-
domestic support obligations, (DSOs)
- child support
- spousal support
- marital property settlements found to be in the nature of a DSO
-
debts incurred by fraud
- (for example, Trump University selling worthless degrees is a debt incurred by fraud)
-
debts due to willful or malicious injury
- (Alex Jones liability should not be dischargeable due to the willful and malicious nature of his actions)
And sometimes, for reasons that have nothing to do with honestly and lots to do with banking industry lobbying... "Congress evidently concluded that the creditors' interest in recovering full payment of debts in these categories outweighed the debtors' interest in a complete fresh start. "
- Tax debts
- if less than 3 years old or if you never filed for those years, then forever
- student loans (!?@#)
- There is nothing "dishonest" about a student loan debt, and yet, they are non-dischargeable in bankruptcy.
- However, if a you can make a showing of "undue hardship" to a bankruptcy judge in an separate, adversary proceeding, (in addition to your regular bankruptcy filing) you may get your student loan debt reduced or eliminated. Rare, but it happens, especially. for debtors who represent themselves.
Now the "Unfortunate" Part:
Put simply --Sh*t Happens! That's why there's bankruptcy
To put it simply, bankruptcy jurisprudence is about acknowledging that "Shit happens"
Life takes unexpected turns sometime...
Most Americans are just one catastrophic event away from financial ruin.
And it happens to all of us, often when we never see it coming.
Types of Catastrophic Life Events
- loss of a job (normal expenses mount into a debt pile)
- illness, or medical event (combined with job loss, and medical bills)
- divorce (generally combined with loss of income and increased housing bills)
- accident (can combine injury, job loss, disability)
... but once shit has happened—then what?
Life goes on....
- Utility Bills have to be paid.
- Food and clothing - You and your kids need to be fed.
- Cars need to be fueled and maintained
- to get to work
- to get kids to school
- Housing needs to be paid monthly (rent or mortgage)
Cover your ASSets! With Exemption Laws, You don't have to be "broke" to qualify for bankruptcy!
Bankruptcy is about resilience — a chance to start over.
It's about giving you tools to get you back on your feet — on a solid financial footing.
Asset protection laws ("exemptions"), at the state and federal level, let you retain a basic foundation of assets on which to plan your "fresh start" after your debts are officially discharged in bankruptcy.
You don't have to — and should NOT — wait until you are completely broke before you file for bankruptcy.
Indeed far to many people wait too long to consult with a bankruptcy lawyer and end up depleting the very assets they could protect in a bankruptcy before actually considering that option— thereby squandering the very protection that bankruptcy law provides!
Property You Can Protect In Bankruptcy (more than you think?)
State and Federal asset protection laws (also called "exemptions") are important because they limit the power of a trustee or unsecured creditor to seize your property in a bankruptcy case.
These "exemptions" — so named because they define what kinds of property are "exempt" from "attachment" from a judgement-creditor's lien — exist because the government doesn't want you to be completely penniless!
Note different rules apply to "secured property" — that is, property you have pledged as collateral for a debt.
State and federal exemption laws are designed to help most debtors keep most of their property when they file, so they have a solid foundation for a fresh start.
Most Cases Are "No Asset" Cases: Most people (more than 90%) of consumers who file for Chapter 7 bankruptcy have their debts discharged while losing no property because all of their property is exempt or pledged as collateral to a secured creditor..
But, exemptions laws vary widely from state to state. And it's important to know which exemption laws you can use, and what the limits are, before you decide whether to file for bankruptcy.
This website lists exemption laws that are available to you in Ohio so you can see the kinds of property you can protect. We provide a detailed listing of Ohio exemptions, with specific citations, but it is up to you to determine whether you qualify for each exemption based on your unique set of facts.
Note this does not address the separate issue of "secured" debts — that is, where a creditor has a "lien" attached to your property — which bankruptcy can't do much about, except in some important cases of judgement liens, where the secured property is "oversecured" that is, where the total liens exceed the value of the property plus any exemptions. See more about that here.
See also these resources about bankruptcy in Ohio
Income Limits for Chapter 7 Bankruptcy in Ohio
Do you qualify for bankruptcy?
You just need to show that:
- you have a sizable amount of past debt (not future debt)
- that you can't fully pay out of:
- Your Monthly Income:
- if your monthly income is below the median income in Ohio,
- Your "Non-Exempt" Assets:
- non-retirement, non-exempt savings and property (i.e. your assets),
- Your "Disposable" Monthly Income
- Note: if your monthly income is below the median income in Ohio, for a household your size, it is assumed you don't have to show how much, if any, of your income is "disposable", (after deducting standard "allowed" monthly expenses for a household your size, in Your County.)
- housing (rent or mortgage)
- food
- transportation
- healthcare
- Note: if your monthly income is below the median income in Ohio, for a household your size, it is assumed you don't have to show how much, if any, of your income is "disposable", (after deducting standard "allowed" monthly expenses for a household your size, in Your County.)
- Your Monthly Income:
That's all that the government requires.
Spending Allowances for Food, Clothing, Housing, Transportation & Medical Care in Your County
"Disposable Income" Calculations & The Means Test
The point of bankruptcy is to leave you with enough to get a fresh start. And you should have enough income to handle your monthly expenses, once your "shit happened" dischargeable past debts are eliminated.
Bankruptcy is NOT a way to cure chronic overspending. That is not what it's for.
But most people are not living beyond their means, but rather barely have the means to live, and large unexected debts can make that even harder.
The local and national standards in the "Bankruptcy Means Test" give you the right to enough income each month to:
- keep the heat & water on,
- keep a roof over your head,
- feed your family and
- get to and from work and child care
What is the means test?
When congress revised Federal bankruptcy laws in 2005, they added a new feature called the "means test", to determine whether people can qualify for Chapter 7 bankruptcy, or whether they must file a chapter 13.
The means test is designed to see if
- you have any "disposable income" over the next five years to fund a Chapter 13 plan?
- and if you do,
- Would your disposable income over 5 years (60 months) pay at least as much or more to your creditors than they would get from a Chapter 7 (liquidation) bankruptcy, where the bankruptcy court trustee would sell all of your non-exempt assets (if any) and distribute the proceeds (after costs of sale) to your creditors?
"Disposable" Income Allowances for Where You Live
- How much can I spend on my rent or mortgage each month if I file bankruptcy in Ohio?
- How much can I spend on my healthcare each month if I file bankruptcy in Ohio?
- How much can I spend on my transportation each month if I file bankruptcy in Ohio?
- How much can I spend on my food, clothing and other necessities each month if I file bankruptcy in Ohio?
- Means Test: Expenses: Line 6
- Does "disposable income" include deduct for retirement contributions each month?
- Chapter 7 Bankruptcy doesn't affect your monthly contributions after you file. In Chapter 13, it depends .
Using the Means Test Calculator to see if you qualify for Chapter 7
Since LegalConsumer.com launched in 2006, we have featured a free online means test calculator, that will do the lookups and math for you, if you provide a zip code.
Need Help? Connect with a lawyer
The content of this article pertains to all US states and counties.