Lucas Ruffing Law

Bankruptcy Blog

What does “Equity” mean?

When filing Chapter 7 bankruptcy, the term “equity” is very important, and is used all the time. But what does it mean? And why is it so important in bankruptcy?

NOTE: Chapter 7 “Liquidation” Bankruptcy is much different than Chapter 13 “Reorganization” Bankruptcy — don’t confuse the 2 different types of bankruptcy while reading this post. This post is primarily about “equity” in a Chapter 7 bankruptcy case.

The meaning of “equity” in the Chapter 7 bankruptcy context:

  • The total value of an asset minus the liabilities owed on that asset

  • For example: 2019 Chevy Equinox

    • Value: $15,000

    • Loan amount: $14,000

    • Equity (value minus loan): $1,000

Why is Equity Important in Chapter 7 Bankruptcy?

  • Equity is important in chapter 7 bankruptcy because the applicable bankruptcy laws (Ohio & Federal) have limits on how much equity you can protect in certain assets. In other words, will you be able to keep an asset? Or will you have to surrender it to the chapter 7 bankruptcy trustee? (REMEMBER, this is a discussion on Chapter 7 “liquidation” bankruptcy… Chapter 13 bankruptcy allows you to KEEP your “unexempt” assets)

  • For example, Ohio law allows an individual to protect up to $4,450 (as of April, 2024) of EQUITY in a single motor vehicle. What does that mean?

    • Let’s use the 2019 Chevy Equinox as an example:

      • Value: $15,000

      • Loan: $14,000

      • Equity: $1,000

      • This vehicle has $1,000 of equity, and Ohio law allows you to protect $4,450 of equity in a single motor vehicle. Therefore, this vehicle would be protected from the chapter 7 bankruptcy trustee, and the trustee would not be permitted to take it from you.

    • On the other hand, let’s say you have a 2005 Ford Mustang GT:

      • Value: $15,000

      • Loan: $0.00

      • Equity (value minus loan): $15,000

      • This vehicle has $15,000 of equity, and Ohio law only protects $4,450. This leaves $10,550 unprotected. The chapter 7 trustee can, and would, pursue the vehicle for the unprotected equity.

      • Option 1: The trustee would take the vehicle and sell it at auction; the first $4,450 from the sale would be sent back to you to compensate you for the protected portion of the vehicle, and the other $10,550 would be used to pay some of your creditors.

      • Option 2: You could “buy back” the vehicle, which means you (or a family member/friend) would have to pay the trustee for the unprotected portion of the vehicle -- $10,550 – but you would get to keep the vehicle.

“Equity” can be a tricky concept, which is why it’s important to speak with an experienced bankruptcy attorney when you’re considering the best way to eliminate your debt. Call/Text/Email me, Attorney Lucas Ruffing, to discuss exactly how your bankruptcy would look.

Thanks,

Lucas Ruffing
Attorney
740-815-1114 (call/text)
LucasRuffingLaw@gmail.com (email)

Lucas Ruffing