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Pennsylvania Bankruptcy Exemptions and Law
Most families live from paycheck to paycheck. About two-thirds of Pennsylvanian households do not have the cash to pay a $400 emergency expense. So, they are incredibly vulnerable to the financial storms of life. These storms include things like business downturn, divorce or separation, sudden illness, and job loss.
How Pennsylvania Bankruptcy Can Help
Bankruptcy offers these families shelter from these financial storms. A bankruptcy attorney can build something much more secure than a temporary shelter. Lawyers show debtors how to maximize the law's limited property exemptions. Furthermore, attorneys help you quickly rebuild your credit score, so you can make the most of your fresh start.
Pennsylvania Bankruptcy Law
Bankruptcy law is a combination of state and federal law. State laws determine a number of things, such as bankruptcy exemptions. Federal laws control most other parts of bankruptcy.
The Constitution authorized Congress to create a uniform bankruptcy law that applied in all states. After several false starts, lawmakers enacted the Bankruptcy Code. Its provisions protect debtors who, through no fault of their own, are experiencing financial duress.
The automatic stay is a big part of this protection. Theoretically, a judge could protect you if you prove lender fraud or some other misbehavior, but that takes legal action on your part and requires you proving your case. Section 362 of the Bankruptcy Code, on the other hand, automatically stops adverse actions like:
- Creditor harassment
- Wage garnishment
- Bank account levy
In some cases, the automatic stay remains in effect for up to five years. This period gives distressed debtors time to eliminate mortgage arrears and other past-due secured debts.
Furthermore, bankruptcy eliminates debts. In both kids of consumer bankruptcy, this discharge usually applies to:
- Medical bills
- Payday loans
- Credit cards
- Signature loans
- Back taxes (in some cases)
Bankruptcy's protections go even further. As outlined below, most debtors get to keep most of their property as they take advantage of the automatic stay and debt discharge.
There are basically two forms of consumer bankruptcy. Chapter 7 is the fastest and easiest way for debtors to obtain fresh starts. Typically, the judge discharges most unsecured debts in as little as six months. Chapter 13 is normally ideal for families struggling with past-due mortgage payments and other delinquent secured debts.
Am I Eligible for Bankruptcy in Pennsylvania?
Most people qualify for the bankruptcy of their choice. The few qualifications are basically designed to prevent people from taking advantage of the system.
All debtors must cooperate with the bankruptcy trustee (the person who oversees the bankruptcy for the judge). They must provide requested documents, honestly answer the trustee's questions, and come to all meetings as scheduled.
Furthermore, Chapter 7 bankruptcy debtors must pass the means test. Your annual income must be below average. The exact amount changes every few months. Generally, a Pennsylvania family of four cannot earn more than $104,000.
Chapter 13 debtors cannot exceed the debt ceilings. You cannot have more than $1.4 million in secured debt and $400,000 in unsecured debt. These numbers are subject to change as well.
These qualifications are usually not a problem. If they are an issue, a Pennsylvania bankruptcy lawyer can offer some alternatives, such as non-bankruptcy debt negotiation. Frequently, the mere possibility of filing bankruptcy convinces creditors to renegotiate debt terms.
The formal qualifications are fixed by law. They are the same in all three Pennsylvania bankruptcy courts. Practical eligibility can vary.
Usually, Chapter 7 debtors should have a negative monthly cash flow. If that's not the case, the trustee often concludes that you do not need to file Chapter 7.
Chapter 13 debtors have the opposite informal qualification. They must have high disposable incomes. They must have sufficient funds to make a monthly debt consolidation payment. This payment amount varies. But it's usually about the size of a mortgage or rent payment.
Pennsylvania Bankruptcy Exemptions
In Monopoly and other board games, players who declare bankruptcy lose all their property. The real world is much different, especially in Pennsylvania.
Many creditors, such as the IRS, do not need to go to court to seize property and sell it to pay your debts. Bankruptcy eliminates that possibility. Even if creditors find a way around the automatic stay, they cannot touch exempt property.
Much like bankruptcy qualifications, there are formal and informal exemptions. The formal exemptions are discussed below. The informal exemptions usually involve an obscure bankruptcy rule called the best interests of creditors rule.
Assume Jill has a small bass boat worth about $1,000, and it also needs about $500 in repairs. If the trustee seized it, the trustee must not only make the repairs. The trustee must also store it, market it, and pay all other sales-related costs.
According to the formal exemptions, creditors could seize the boat and sell it. But due to all these expenses, the creditors would get little or no money. So, the trustee might be legally prohibited from seizing the boat.
As mentioned above, each state has its own slate of exemptions. Pennsylvania's property exemptions are as follows:
- Retirement accounts,
- Government benefits,
- Current wages,
- Property of a business partnership,
- Personal property, and
- A Wildcard exemption.
The wildcard exemption, which is $300 in Pennsylvania, allows debtors to protect property that is otherwise non-exempt.
If you are filing a no-asset Chapter 7 or you have substantial assets in a partnership, the state exemptions are probably for you. A good Pennsylvania bankruptcy lawyer can evaluate your case and make a solid recommendation. Most other Pennsylvanians select the federal exemptions, which are:
- Homestead: You may protect up to $25,150 in home equity. So, if you have less equity than that, the trustee cannot touch your house. A Pennsylvania bankruptcy lawyer can unlock some advanced options, such as a tenancy of the entirety, which stretch this exemption further.
- Motor vehicle: If your vehicle has less than $4,000 in equity, the federal exemptions protect it. Most people have practically no equity in new cars. Used cars might have substantial equity, but they have almost no financial value.
- Personal property: Jewelry, electronics, furniture, and other household goods are exempt. These exemptions normally have value ceilings. But most used personal property has almost no value. A $1,000 television set might fetch only $100 or maybe $200 in a garage sale.
- Retirement accounts: Public retirement accounts, like government pensions and teacher retirement plans, are 100 percent exempt regardless of their value. Private accounts, like 401(k)s and IRAs, might be subject to an amount limit. But the law is uncertain on this point. A Pennsylvania bankruptcy lawyer can protect your legal and financial rights in situations like these.
- Wildcard exemption: The federal wildcard exemption is much more complicated than the state exemption. Under the federal exemptions, the wildcard is $1,325. If you do not use all the homestead exemption, you may use up to $12,575 to protect otherwise nonexempt property.
Other exemptions, at both the state and federal level, include life insurance payments, personal injury settlements, disability benefits, and DSO (Domestic Support Obligation) payments, like child support and alimony. Also, at both the state and federal level, the trustee or a creditor can challenge an exemption, usually on the basis of fraud.
Contact a Dedicated Attorney
People who file bankruptcy find relief from financial stress and also get to keep most or all of their property. To get started, reach out to a Pennsylvania bankruptcy attorney today.
Note: State laws are always subject to change through the passage of new legislation, rulings in the higher courts (including federal decisions), ballot initiatives, and other means. While we strive to provide the most current information available, please consult an attorney or conduct your own legal research to verify the state law(s) you are researching.
Frequently Asked Questions About Pennsylvania Bankruptcy
Next Steps: Talk to a Bankruptcy Lawyer
Contact a qualified bankruptcy attorney to find out about your options.