A lot of people in Pennsylvania who want to file for bankruptcy first ask questions such as what will happen to their personal assets, such as bank accounts, furniture, automobiles, retirement accounts, jewelry, and of course their home.
Many people come in to our law office with the belief that filing for bankruptcy will cause them to lose all of their property. This is not at all the case. When filing for bankruptcy protection in Philadelphia, most people can use their exemptions to protect all of their property.
As a Philadelphia bankruptcy lawyer who has filed well over 12,000 Chapter 7 and Chapter 13 bankruptcy petitions, I have always stressed the importance of knowing your Pennsylvania bankruptcy exemptions. The issue of bankruptcy exemptions is one of several key factors that are used in deciding whether to file for bankruptcy protection by filing a Chapter 7 bankruptcy, filing a Chapter 13 bankruptcy, or choosing not to file for bankruptcy at all.
When a person considers filing bankruptcy in Pennsylvania, they often fear that the bank will take everything they have. Thankfully that’s a fear that is largely unfounded. While Chapter 7 bankruptcy does mean liquidating assets to satisfy debts, it does not mean your creditors can take the shirt off your back. The Chapter 7 trustee can only seize assets that are non-exempt. In a typical Chapter 7 bankruptcy filing, your bankruptcy attorney is usually able to exempt all of your assets
There are both Federal and State protections for people filing bankruptcy in PA, and they differ. Which set of exemptions to use will depend upon what sort and how much property you have. Under both sets of exemptions, some personal property and assets are completely exempt from liquidation, while others are exempt up to a certain value.
Federal vs. State Exemptions in Pennsylvania
The Federal Government has standard bankruptcy exemptions available to every citizen in every state. Each state also offers their own exemption scheme that can be used when filing for bankruptcy under Chapter 7.
There are advantages to both sets of exemptions, but you can only claim one set when filing for Chapter 7 bankruptcy. Your bankruptcy lawyer can help you choose which set of exemptions is best for your situation.
Do you have questions about filing bankruptcy in the Philadelphia area? Call David M. Offen at (215) 625-9600 or schedule a consultation through his website.
PA Bankruptcy Exemptions
Does Pennsylvania have a homestead exemption?
The State of Pennsylvania does not offer any specific exemptions for homeowners filing a Chapter 7 bankruptcy. That means your home could be liquidated to pay off your debts if you use the State exemptions.
Protections for Spouses
Spouses enjoy some limited protections with regards to their marital home. Pennsylvania allows couples to own their home in tenancy by the entirety. This is a special kind of property title where both spouses are treated as owning 100% of the home.
If a house is owned in tenancy by the entirety, debts owed by a single spouse cannot be settled by liquidating the home. Only joint debts can be used as grounds to liquidate the marital home. That means if a house is owned as tenants by the entirety and only one spouse owes $50,000 in credit debt, the house can be completely protected.
What personal property is exempt from Chapter 7 bankruptcy in PA?
- The Pennsylvania bankruptcy exemption set allows for a $300 wildcard exemption for personal property.
- Pennsylvania does not have a specific exemption for personal vehicles. They can be liquidated to pay creditors.
- Work uniforms and their accouterments are exempt from liquidation
- Bibles and schoolbooks are exempt as well.
- Most tools can be liquidated, but sewing machines are specifically exempt.
Public Benefits
Workman’s compensation, veteran’s benefits, and unemployment benefits are all exempt from liquidation in Pennsylvania.
Retirement Funds and Pensions
Any retirement fund is exempt up to a deposit of $15,000 a year, but the exemption cuts off 12 months prior to the filing of bankruptcy.
Pensions earned by public servants are exempt from liquidation. This includes city and state government workers of all types, public teachers, police, and firemen.
Insurance Benefits
Up to $100 per month of insurance or annuity payments are exempted. Some insurance policies state in their terms that they cannot be used to satisfy creditors. Conditional on the policy terms, life insurance with such terms might be totally exempt from being used to pay creditors through Chapter 7.
Federal Chapter 7 Exemptions
Federal bankruptcy exemptions are much more generous with personal property protection.
Homesteads
There is a much better chance of keeping your home with the Federal exemption set. It allows for $23,675 of the equity that you have built in your home to be exempt from liquidation.
Vehicles
You can claim an exemption of up to $3,775 equity in your vehicle.
Personal Property
You can claim exemptions of up to $600 per item on household goods. Household goods up to a total of $12,625 are exempt.
You can keep up to $2,375 in items necessary to perform your job. This can include tools, books, computers, or other accouterments.
Federal Chapter 7 exemptions allow you to keep $1,600 in jewelry and $1,250 in other property. Up to $11,850 of any unused exemption in your home can be applied to other personal property.
How Exempt Property is Calculated in PA
An exemption limit applies only to any equity you have in the property. Equity is the difference between what the property is worth and what you owe on the property. For example, let’s say that your home is valued at $100,000. You have a mortgage loan on the property in the amount of $60,000. In addition you also owe a home equity loan in the amount of $25,000. That means you have equity of $15,000 in your home. The same is true with your automobile or vehicle. Your vehicle is worth $17,000. You owe $14,000 on a vehicle loan. That means you have $3,000 equity in your vehicle. In such a case, if we choose the Federal exemptions, your $15,000 equity in your home is protected as well as your $3,000 equity in your vehicle. By choosing the Federal Bankruptcy Exemptions both the home and car are protected and the home and the vehicle are not permitted to be sold to raise money for creditors. By knowing how much equity you have in property we are able to maximize the dollar amount of your exemptions.
If you are under the exemption limits, as long as you are current with your mortgage or vehicle loan payments, these items can be protected when you file for bankruptcy relief. You will, however, need to continue paying the mortgage on the house as well as the loan on the car when you file for bankruptcy if you wish to keep them.
Please note that if you are in arrears on your mortgage, then you can file a Chapter 13 plan, which gives you three to five years to get caught up on your mortgage arrears. You can also do the same if you are not up to date on your auto loan payments.
Exceeding Bankruptcy Exemptions
What happens if you exceed the bankruptcy exemptions? In other words, you own more property than is available with the exemptions, but you still want to keep all your real estate and personal property. To keep all your non-exempt property, you generally need to only pay the amount of non-exempt property. If you don’t have the funds available to pay, then you need to file under Chapter 13 bankruptcy.
In other words, let’s say that you have a baseball card collection that is worth $15,000, and the baseball card collection is not exempt. You want to keep the baseball card collection. If you filed a Chapter 7 bankruptcy case, a Chapter 7 trustee could sell off the $15,000 of non exempt property. The result is that you then have two options if you do not want the trustee to touch any of the baseball card collection. You could get the funds to pay the trustee the $15,000. However, this is something that we rarely see, as most people who come to us cannot come up with large sums of money to pay the Chapter 7 trustee.
Chapter 13 Bankruptcy For Non-Exempt Property
The second option: when the person’s assets exceed the allowable exemptions then most people’s choice in that situation is to file for bankruptcy protection under Chapter 13. In such a case, you would pay into a Chapter 13 bankruptcy plan the monies over a period of 3 – 5 years to cover the amount of property that is non-exempt. You get to keep all of your property. That is why it is important to talk with an experienced bankruptcy attorney and get the right answers on how to handle your financial situation.
Chapter 7 Bankruptcy For Non-Exempt Property
There are other situations that often happen when you choose to file under Chapter 7 bankruptcy. You may have non-exempt property but the Chapter 7 trustee’s goal is to raise money for creditors. If the trustee would try to sell the property he or she would not be able to raise enough money to justify the sale of the real or personal property. In such a case, the trustee will not attempt to sell the property and will take no action. The trustee’s Chapter 7 case report indicates that the trustee is taking no action. This is called abandoning the property. You still keep the property, it just means that the trustee has chosen to take no action.
In my experience over the years, after my clients have chosen the proper exemptions, I have found a Chapter 7 trustee to take action to sell property in less than one percent of cases over the years, which is really a very small amount of the time.
Married Couples Can Double Their Exemptions.
When a married couple jointly files for Chapter 7 bankruptcy, their exemptions stack. For instance, claiming federal exemptions, a married couple could keep $47,350 of equity in their home during the bankruptcy. That means if your home is worth $140,000 and you owe a mortgage of $100,000, you can exempt the home in its entirety with a joint bankruptcy filing.
Which set of exemptions is right for your bankruptcy in PA?
When filing Chapter 7 bankruptcy, you will have the ability to claim a set of exemptions, either the Federal or the State exemptions. Which exemption you claim depends on what kind of property you want to save. It is a highly personal decision, best made with the advice of qualified legal counsel.
If you are in the Philadelphia area, call the Law Offices of David M. Offen at (215) 625-9600 to schedule a free consultation. With over 20 years of practice as a bankruptcy attorney in Philadelphia, Mr. Offen has helped over 12,000 clients navigate bankruptcy. He can answer your questions and help you find the best path to get free of debt. Call him to get the answers to your questions.
