What Are the Pennsylvania Bankruptcy Exemptions?
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Pennsylvania allows bankruptcy filers to use either the state or federal bankruptcy exemptions. Pennsylvania’s state exemptions are more limited than the federal exemptions for most items. In fact, Pennsylvania doesn’t have a homestead or motor vehicle exemption but there are federal exemptions for these items. Pennsylvania offers a $300 wildcard exemption, but this is far less generous than the federal wildcard exemption.
Written by Attorney Karra Kingston.
Updated March 31, 2022
If you’re considering filing bankruptcy in Pennsylvania, you may be worried about what will happen to your car, home, and other things you own. The Bankruptcy Code — the federal law governing bankruptcy across the U.S. — was written to help debtors get a fresh start without losing everything they own. To help achieve that, there are exemption laws. Bankruptcy exemptions allow filers to keep certain property.
This article explains how bankruptcy exemptions work in the state of Pennsylvania and outlines some of the most commonly used exemptions.
Why Pennsylvania Bankruptcy Exemptions Are Important in Chapter 7 Bankruptcy
Bankruptcy exemptions protect your assets up to a certain dollar amount. If a piece of property or asset is covered by an exemption, the bankruptcy trustee administering your case can’t sell it to get money to pay your creditors. Most state exemptions allow filers to keep many basic assets like their car, home, clothes, and other household goods and furniture.
If you own property that isn’t covered by an exemption, it’s called non-exempt property. Under bankruptcy law, the bankruptcy trustee can sell any non-exempt property you own and use the proceeds to pay your creditors. But this is rare in Chapter 7 cases. Most are no-asset cases, which means all the debtor's property is protected by exemptions.
Who Can Use the Pennsylvania Bankruptcy Exemptions?
The federal Bankruptcy Code is the law that governs bankruptcy cases across the U.S. It includes a list of federal bankruptcy exemptions. States can choose whether to use the federal bankruptcy exemptions or create their own exemptions. Pennsylvania state law has its own list of bankruptcy exemptions, but you can choose to use the federal exemptions instead if they’re more beneficial for your case. It’s up to you which set of exemptions you choose to use, but you can’t pick and choose from both.
To use the Pennsylvania state exemptions, you need to have lived in the state for at least two years prior to filing your bankruptcy petition. This requirement ensures people don’t move to file bankruptcy in a state with more favorable exemption laws. If you use the state exemptions, you can also use thefederal nonbankruptcy exemptions to protect qualifying retirement funds and disability benefits for public employees and military personnel.
If you aren’t sure which set of exemptions will be most beneficial for your individual situation, you can schedule a free consultation with a bankruptcy attorney. An experienced Pennsylvania bankruptcy lawyer will be able to give you legal advice that’s tailored to your case.
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Pennsylvania Bankruptcy Exemptions
Below we’ll cover the most commonly used Pennsylvania exemptions. They fall into three broad categories: real property exemptions for your home, personal property exemptions, and money benefit exemptions. If you own property with your spouse and file bankruptcy together, you can double the exemption amount for that property.
Real Property Exemptions: The Pennsylvania Homestead Exemption
Many people are surprised to learn that there’s no Pennsylvania homestead exemption under Pennsylvania law. This is why many homeowners who have equity in their homes choose to use the federal bankruptcy exemptions to protect their real estate. The federal bankruptcy exemptions currently allow you to protect up to $27,900 of equity in your home. If you’re married and filing with your spouse, you can double this exemption and protect up to $55,800 in equity.
Equity is the amount your home is worth minus the amount you owe on your mortgage(s). For example, let’s say you own a home in Philadelphia that costs $300,000 and you owe $250,000 on the mortgage. This means you have $50,000 in equity. If you’re filing bankruptcy as an individual, you won’t be able to exempt the full value of the home because your equity is more than the $27,900 exemption. But a married couple in the same situation could use the federal exemption to protect their full equity and keep the home during a Chapter 7 case.
If your home isn’t protected by exemptions, that doesn’t mean you have to lose your home. You may want to explore a different debt relief option or look into filing Chapter 13 bankruptcy instead.
Personal Property Exemptions
A home and the land it sits on is called real property. Most other things you own are personal property. Pennsylvania bankruptcy exemptions protect some personal property. For example, you can exempt the full value of work uniforms, bibles and school books, sewing machines, uniforms, and clothing.
Unfortunately, there isn’t an exemption for tools of the trade or items you use for your work in Pennsylvania’s state exemptions. But if you use the federal exemptions, you can use the $2,800 tools of trade exemption.
Pennsylvanians can use the state’s wildcard exemption of $300 to exempt any personal property that’s not otherwise protected by an exemption. You can also add this amount to any other exemption to increase the dollar amount that’s protected.
The federal wildcard exemption of $1,475 is more generous than Pennsylvania’s state wildcard exemption. If you use the federal exemptions and you aren’t using the homestead exemption, you can add $13,950 to your wildcard exemption. This means your wildcard would be worth $15,425 in total. This may come in handy if you want to protect a motor vehicle.
Motor Vehicle Exemption
If you own a car and want to keep it through your bankruptcy, you may want to use the federal motor vehicle exemption because Pennsylvania doesn’t have an exemption for cars. Federal bankruptcy exemptions protect up to $4,450 in equity for motor vehicles.
If you own a car outright or have equity in a vehicle you’re still paying on, it won’t be protected under Pennsylvania’s exemptions unless you use the wildcard exemption, which is only $300.
Other Pennsylvania Exemptions:
Pennsylvania’s state exemptions protect certain wages, retirement funds, money benefits, and insurance. As mentioned above, if you’re using the state exemptions, you can also use the federal nonbankruptcy exemptions, which provide protection for many of these items.
You can keep up to 75% of your earned unpaid weekly wages.
Retirement benefit plans such as a 401(k), IRA, and Roth IRA are exempt up to a deposit of $15,000 a year, but the exemption cuts off 12 months before your bankruptcy filing date. This means anything you deposited in the year before you filed your bankruptcy case won’t be protected by this exemption.
Public servants that earn pensions can exempt the full value of their pensions. This includes police officers, teachers, public school employees, firefighters, city employees, and county employees with 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 you receive as public assistance can be exempt. This includes workers' compensation and unemployment compensation.
Up to $100 per month of insurance or annuity payments can be exempt. You should also check the terms of your insurance policies because many policies state that they can’t be used to pay off creditors.
Federal Chapter 7 Bankruptcy Exemptions
Without a homestead or motor vehicle exemption, the Pennsylvania bankruptcy exemptions don’t provide much protection for the items many bankruptcy filers are most worried about losing. This is why many Pennsylvanians who file Chapter 7 bankruptcy choose to use the federal bankruptcy exemptions instead.
The federal homestead exemption protects up to $27,910 in home equity or double that ($55,820) if you’re married. The federal motor vehicle exemption protects up to $4,450 of equity in your car. And the federal wildcard exemption starts at $1,475. But remember, if you don’t use the federal homestead exemption, you can add up to $13,950 to your wildcard exemption.
We’ve mentioned some of the federal exemptions above, but here’s a more comprehensive list of common federal bankruptcy exemptions filers use in Chapter 7 cases:
Jewelry exemption: $1,875
Household furnishings, radio, TV, VCR, electronics, books, antiques, musical instruments, wedding rings, non-farm animals: $700 per item or a total value of $14,875
Personal injury recovery: up to $27,900 except for funds awarded for pain and suffering
Roth IRA: up to $1,512,350
Tools of the trade: $2,800
Life insurance policy with loan value up to $14,875
Social Security benefits: no limit
Veteran’s benefits: no limit
Alimony and child support: no limit
Health aids: no limit
Wrongful death recovery: no limit
Lost earning payments: no limit
Should You File Chapter 7 Bankruptcy?
If you’re drowning in medical bills and credit card debt, bankruptcy may be the tool you need to discharge your unsecured debts and get a fresh start. Before you head to the bankruptcy court to file your paperwork, take some time to learn about the difference between Chapter 7 and Chapter 13 bankruptcy, as well as your other debt relief options. You can also take advantage of a free consultation with a bankruptcy attorney or a free session with a nonprofit credit counselor to get a better sense of what’s right for you.
If you decide bankruptcy is the right choice for you, you’ll need to decide which set of exemptions to use: the Pennsylvania state exemptions or federal exemptions. If you own a home or car, the federal exemptions are much more generous. If you want to file Chapter 7 bankruptcy and you have a simple case, you can use Upsolve’s free filing tool. The tool walks you through the steps to complete your bankruptcy paperwork.