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CLIENT ADVISORY - April 23, 2008

No More Relief for Creditors in Ohio: Creditors Need to Take Action  

by Beth Ann Schenz, Esq.

S.B. 281 (“Bill”) raises exemptions in Ohio to a level that would render creditors unable to collect effectively on defaulted loans and delinquent accounts.  The Bill passed the Senate in a 33-0 vote last month.  Currently, the Bill is with the House Judiciary Committee that is accepting testimony this Thursday, April 24, 2008.  It is imperative that creditors take immediate action by either attending the hearing in opposition to S.B. 281 and/or contacting the members of the House Judiciary Committee and/or their representative today to voice their opposition to S.B. 281 unless it is modified to reflect the economic realities currently existing in the state of Ohio. 

O.R.C. 2329.66 currently provides exemptions from execution for real, personal and intangible property when creditors go to execute on judgments they receive from defaulted loans and delinquent accounts.  S.B. 281 proposes to increase the exemptions that debtors can claim on their assets by 400%.  A summary of the current versus proposed exemptions is set forth below:

Debtor’s interest in Residence 2329.66(A)(1)(b)
Current exemptions: $5,000.00
S.B. Proposal: $20,200.00 per person/$40,400.00 per couple

Debtor’s interest in Motor Vehicle 2329.66(A)(2)
Current Exemptions: $1,000.00
S.B. Proposal: $3,225.00

Debtor’s interest in Aggregate Personal Items 2329.66(A)(4)
Current Exemptions: $2,000.00
S.B. Proposal: $10,775.00

Debtor’s interest in Tools of Trade 2329.66(A)(5)
Current Exemptions: $750.00
S.B. Proposal: $2,025.00

Debtor’s interest in Personal Bodily Injury 2329.66(A)(12)(c)
Current Exemptions: $5,000.00
S.B. Proposal: $20,200.00

Debtor’s interest in Aggregate Exemption (Wild Card) 2329.66(A)(18)
Current Exemptions: $400.00
S.B. Proposal: $10,125.00

The “wildcard” exemption increase to over $10,000.00 would virtually eliminate all creditors’ rights and powers, and any bankruptcy dividends if the debtors filed for bankruptcy protection.  Under current Ohio law, there is a $400 catchall exemption or “wild card” that can be used for any property.  The current bill proposes to increase the homestead exemption substantially and to then allow debtors to utilize any unused portion of the homestead exemption as a catchall.  Therefore, debtors who do not have a homestead or who have no equity in a homestead can claim the wild card exemption and keep any property that is valued up to $20,200.00 (including cash of that amount in a bank account) and still file a Chapter 7 bankruptcy.

Further, the ramifications of increasing the exemption by 400% and especially the wildcard exemption will result in the following:

  • Virtually every Chapter 7 bankruptcy proceeding would result in a so called “no asset” estate. Less than 1% of estates would result in any dividend to creditors. 
  • Without dividend to creditors in Chapter 7 bankruptcy, priority claims such as child support and taxes will not be paid as efficiently.  In many instances, the only possibility of recovery for state, local and federal agencies is in a bankruptcy proceeding.
  • Chapter 13 percentage distributions would plummet to insignificant levels as the liquidation analysis test would result in net estate values of zero. 
  • Judgment liens, non-voluntary liens on real property, will be rendered ineffective as a debtor could file bankruptcy and avoid these non-voluntary liens.
  • More Chapter 7 bankruptcies as debtors can effectively shield their assets from creditors, i.e. a debtor purchases a car on a credit card and files bankruptcy.  A debtor can keep the car under the exemptions and discharge the debt or a debtor can retain up to $20,200.00 of a qualifying personal injury award while discharging obligations to pre-petition medical providers.

It is imperative that creditors contact their representative TODAY.

If you have any questions on this information, please contact Ms. Beth Ann Schenz, Esq.

Beth Ann Schenz is an Associate in the Bankruptcy department of Weltman, Weinberg & Reis Co., L.P.A. in Brooklyn Heights, Ohio. Ms. Schenz can be reached at (216) 739-5645 or via e-mail at bschenz@weltman.com.

Client Advisory is published by Weltman, Weinberg & Reis Co., L.P.A., an organization providing comprehensive creditor representation.  The information contained in this advisory is a summary of legal information and is not intended to constitute legal advice on specific matters or create an attorney-client relationship.  Contact any of our offices or visit our website at www.weltman.com or www.realestatedefaultgroup.com for more information, company facts and attorney profiles.(c)2008