What are the Pennsylvania Bankruptcy Exemptions?

What Are Pennsylvania Bankruptcy Exemptions and Why Are They Important in Chapter 7 Bankruptcy?

The Bankruptcy Code sets forth a list of federal exemptions but also allows each state to opt-out and mandate the use of state exemptions instead. Bankruptcy exemptions allow a debtor to keep certain property that is deemed necessary to meet a basic standard of living. When people file a Pennsylvania bankruptcy, they often believe that all of their property will be taken away from them. Bankruptcy exemptions protect your assets up to a certain amount so that your trustee can’t sell them for the benefit of your creditors. Pennsylvania bankruptcy exemptions allow you to keep some of your most basic assets like cars, home, clothes, bed, and other household goods and furniture. Bankruptcy exemptions only cover a certain dollar amount per asset, typically. The bankruptcy court does not want you to be able to keep luxury items while you reap the benefits of not paying your creditors, so nonexempt property is sold by the trustee to pay creditors. 

Does Pennsylvania Allow The Use Of Federal Bankruptcy Exemptions?

As mentioned above, when you file for bankruptcy you will need to determine whether to use the federal or Pennsylvania bankruptcy exemptions. As you fill out your bankruptcy petition, you will need to go through each of your assets and determine which set of exemptions fits best. Pennsylvania is one of the few states that allows you to choose which exemptions to use. Pennsylvania law allows you to either pick the federal or state exemptions, but you can’t use both. If you choose to use the Pennsylvania exemptions, you will only be able to use the federal nonbankruptcy exemptions to protect certain qualifying retirement accounts and disability benefits for public employees and military personnel. To stop people from fraudulently moving to different states to file bankruptcy where the exemptions are more favorable for them, the Bankruptcy Code requires you to be a Pennsylvania resident for at least 730 days (two years) to use Pennsylvania’s exemption scheme. 

Below we will talk about the different Pennsylvania exemptions that can be used. Keep in mind, that married couples filing jointly can double the exemption amount. This is only available if you both own the property together. 

Pennsylvania Bankruptcy Exemptions

Real Property Exemptions: Pennsylvania Homestead Exemptions

Many people are surprised to learn that there is no Pennsylvania homestead exemption under Pennsylvania law. This means that if you own a home and have equity, you will need to protect your real estate using the federal bankruptcy exemptions. The federal bankruptcy exemptions currently allow you to protect up to $25,150 of equity in your home. If you are married, then the number can be doubled to $50,300. Equity is the amount your home is worth minus the amount you owe on your mortgage(s). For example, if I own a home worth $800,000 and I owe on my mortgage company $500,000, then I have $300,000 of equity. In this example, I would not be able to exempt my home because the equity is over $25,150.00. If you can’t exempt your home, then the bankruptcy trustee can take your property to pay off your credit card debt and other unsecured debts. 

Although Pennsylvania does not have a homestead exemption, you may still be able to keep the property if you are married and you and your spouse hold the property as a tenancy by the entirety. 

Personal Property Exemptions: 

Wildcard Exemption:

• In most states, the wildcard exemption is used to exempt personal property. The wildcard exemption in Pennsylvania is $300.

Motor Vehicle Exemption: 

• Pennsylvania does not have a motor vehicle exemption. This means that any vehicles you own can be subject to liquidation to pay off your creditors. This issue will only arise if you own your vehicle free and clear of any liens. 

Consumers filing bankruptcy can keep their personal property under the Pennsylvania bankruptcy exemptions. Below are some of the things you can keep:

Work Uniforms, Bible and School Books, sewing machine, uniforms, clothing: 

• You can exempt the full value of these items 42-8124

Tools of Trade: 

• There is no exemption which means the tools can be liquidated. 

Other Pennsylvania Exemptions:

Wages: 

• You can keep up to 75% of earned unpaid weekly earnings. 

Retirement Accounts: 

• Retirement benefit plans such as 401(K), IRA , Roth IRA, etc. are exempt up to a deposit of $15,000 a year, but the exemption cuts off 12 months prior to the filing of bankruptcy, so anything deposited in the year before a bankruptcy case is filed is not protected by this exemption.

• Public servants, such as police officers, teachers, public school employees, firemen, city employees, and county employees, that earn pensions can exempt the full value of their pensions.

• Federal exemptions contain separate protections for ERISA qualified retirement accounts that can be used to protect qualifying accounts even if the filer has chosen to use the Pennsylvania bankruptcy exemptions. 

Money Benefits: 

Public Assistance can be exempt so none of these assets will be liquidated:

• Workers' compensation, unemployment compensation

Insurance Proceeds: 

• Up to $100 per month of insurance or annuity payments are exempted. You should also check the terms of the insurance policies because some state in their terms that they cannot be used to pay off creditors.

Federal Chapter 7 Bankruptcy Exemptions:

You may find that the Pennsylvania bankruptcy exemptions are a bit sparse. If you are worried about keeping your property, then you may want to look into the federal law. You can protect your property by using the federal bankruptcy exemptions instead. Below is a list of some of the federal bankruptcy exemptions that can be used:

• Motor Vehicle Exemption - up to $4,000

• Homestead Exemption - up to $25,150

• Jewelry Exemption - up to $1,700 

• Wrongful death recovery - no limit 

• Personal injury recovery - up to $25,150 except for pain and suffering

• Lost earning payments - no limit 

• Tools of the trade - up to $2,525

• Life insurance policy with loan value up to $13,400 

• Wildcard exemption - $1,325 of any property, and the unused homestead exemption portion of up to $12,575

• Alimony and child support- no limit 

• Roth IRA - up to $1,362,800

• Health aids - no limit 

• Household furnishings, radio, TV, VCR, electronics, books, antiques, musical instruments, wedding rings, non-farm animals - $625 per item 

Filing Chapter 7 Bankruptcy 

When you file for bankruptcy, the goal is to get a discharge and start fresh. To ensure your case goes smoothly so that you will get a fresh start, you may want to speak with a bankruptcy lawyer. Speaking with a Pennsylvania bankruptcy attorney is a good place to start if you are not sure what exemptions you should use. A bankruptcy lawyer can help you with the debt relief process by assessing your situation and determining if Chapter 7 bankruptcy or Chapter 13 bankruptcy is the right decision for you. They can also provide you with sound legal advice about your financial situation. If you decide to hire a bankruptcy lawyer make sure that you find one that you feel you will get along with and easily be able to have an attorney-client relationship. Many bankruptcy law firms provide clients with free consultations which you can benefit from.

Upsolve has free bankruptcy tools to help you file your bankruptcy case. If you feel that hiring a lawyer is too expensive and you want to do it on your own, then you can take advantage of our website which has a host of information to help point you in the right direction. Plus, if you’re eligible, you can use our free online web app to prepare your bankruptcy forms.