Pennsylvania Bankruptcy Exemptions: 6 Things You Need To Know
As a Philadelphia Bankruptcy Lawyer who has filed well over 10,000 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.
I will give a general idea of the Bankruptcy Exemptions available to people who choose to file for Bankruptcy relief and discharge their debts – under either Chapter 7 or Chapter 13.
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, and of utmost importance, their home. Many people come in to us 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.
Pennsylvania Bankruptcy Exemptions
The United States Congress as well as the Pennsylvania Legislature have enacted laws which protect many assets from being taken by creditors in the event you file a Bankruptcy case. This means you can keep the assets after filing for Bankruptcy protection and your creditors are not allowed to go after those assets. There are Federal Bankruptcy Exemptions which were enacted by the United States Congress. The Pennsylvania Bankruptcy Exemptions were enacted by The Pennsylvania Legislature. The following will be a brief discussion of the exemptions available when people file for Bankruptcy protection to obtain debt relief in Pennsylvania.
The Pennsylvania Bankruptcy Exemptions only allow you to exempt $300 in any property. In addition the Pensions of City employees, County employees, Municipal employees, Police officers State employees, most wages, unemployment compensation, workers compensation, veterans benefits, as well as many other public benefits are exempt as are clothing, Bibles, schoolbooks & sewing machines. Uniform & accoutrements are also exempted, as is Business Partnership property. There are also other Pennsylvania Bankruptcy exemptions that may apply to your situation.
Exemptions Under Federal Law
The Federal Bankruptcy Exemptions provide as follows with an important provision that you should be aware of if the Bankruptcy is a joint filing;If the filing for Bankruptcy is for both – a husband and wife – then the exemptions are doubled as the law allows the husband and wife to each claim the full amount of their exemptions.
The following are some of the most important bankruptcy exemptions which you are allowed under federal law:
- You are permitted to keep $23,675 of equity in your primary home. This is known as the homestead exemption; you can use it to protect residential real estate as long as you live in the property. However, this exemption does not extend to rental properties or to investment properties. It also does not apply to a home in which you neither live in nor are moving into. In addition to the homestead exemption, you are allowed to exempt other personal property as follows;
- Your vehicle up to a value of $3,775.
- Jewelry with a value of up to $1,600.
- Household items worth up to a total of $12,625, as long as no single item is worth more than $600. This includes furniture, kitchen appliances, clothing, televisions, etc.
- Tools for your work, including books, valued up to $2,375.
- A total of $12,625 which is the amount you can borrow from a life insurance policy, or other life insurance policy interest.
- All health aids.
- Reasonable spousal and/or child support payments.
- All Social Security, unemployment, veteran’s and/or disability benefits.
- Personal injury compensation up to $23,675 (this is for economic damages only). These amounts do not include money recovered for pain and suffering.
Qualified Tax Exempt Retirement account, Personal IRAs and Roth IRA’s with a cap of $1,283,025. The wildcard exemption protects up to $1,250 in any property of your choice plus the unused portion of your homestead exemption up to $11,850. For example, you may use some of your wildcard exemption to protect your bank accounts, a fur coat and any equity in your vehicle in excess of the vehicle exemption of $3,775.
Federal Bankruptcy Exemptions Vs. The Pennsylvania Bankruptcy Exemptions
If you live in Pennsylvania, you have the choice of using either the Federal Bankruptcy exemptions or choosing the Pennsylvania Bankruptcy exemptions. You cannot choose to use both the Federal Bankruptcy Exemptions and the Pennsylvania Bankruptcy Exemptions. You will find that the Federal Exemptions are generally more favorable than the Pennsylvania Exemptions with one big exception; If you own a house jointly with your spouse and you have a large amount of equity in the house, or if you own a substantial dollar amount of personal property that is jointly owned with your spouse and the personal loans or credit card debts are in one person’s name only – then you may find that you get a better result when choosing the Pennsylvania Bankruptcy Exemptions rather than choosing the Federal Bankruptcy Exemptions. That is because the Pennsylvania Bankruptcy Exemptions allow a joint property exemption without a specific dollar limit. This is a very big financial advantage for a jointly owned property where the debts are only in one person’s name.
The above lists include many of the available Bankruptcy Exemptions in Pennsylvania. However, it does not include all of the exemptions. Please note that there are also exceptions to the exemptions. For example, while IRA’s can be exempt, if you inherit an IRA the rules change even though it is still an IRA. For any specific situation, you should contact an experienced Philadelphia Bankruptcy Attorney at The Law Offices of David M. Offen who can explain how the exemption laws apply to your specific situation. Do not rely on what someone tells you. Every case has its own set of facts and even the slightest difference between your case and someone else’s case can produce a totally different result.
How Exempt Property is Calculated
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, lets 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 Lawyer in Philadelphia and get the right answers on how to handle your financial situation.
Chapter 7 Bankruptcy For Non Exempt Property
There are also other situations that happen very 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.
Bankruptcy Exemption in Pennsylvania
Our office has helped different members of the same family who need to file for Bankruptcy protection. Not only have we had to choose to file for Bankruptcy relief under different chapters, but in addition we have had to choose a different set of exemptions for each person. There is no general rule for a family. What is right for one family member may not at all be the best decision for a different family member. Some individuals are better served choosing to file for Bankruptcy using the Federal Bankruptcy exemptions, while other individuals are much better off choosing to file for Bankruptcy using the Pennsylvania Bankruptcy exemptions. The same applies to the type of Bankruptcy you should choose to file. Whereas one person will be better off filing for Chapter 7 Bankruptcy protection, another person will be in much better shape choosing to file a Chapter 13 Bankruptcy Petition.
To get the information you want regarding resolving your debt situation and your Bankruptcy questions, contact The Highly Experienced Philadelphia Bankruptcy lawyers at The Law Offices of David M. Offen today. We will help you make the right decision about which exemptions you should choose to use, which chapter of bankruptcy to file, and whether or not to Bankruptcy is right for you at all. For your free confidential consultation and to quickly get the right answers on the best choice to resolve your financial difficulties, Call The Law Offices of David M. Offen at 215-625-9600 today. We have helped over 10,000 individuals and families use the law to their advantage to resolve their financial difficulties. Let us show you how we can do the same for you.