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Posted by: John O'Connor
Last updated Aug. 30, 2017.
Home to the first baseball stadium in the U.S., first American flag, and first daily newspaper, Pennsylvania attracts residents and visitors alike to a history rooted in tradition and culture. That includes Philadelphia’s famous cheesesteak sandwiches, the Liberty Bell, and beautiful, old bridges all over the state.
Debt is not one of those traditions — at least, not anymore. Some areas of Pennsylvania, like the U.S., are experiencing a decline in bankruptcy filings from their peak in 2005. However, that doesn’t mean some residents aren’t still struggling financially. Although the economy is getting better, the Pennsylvania unemployment rate continues to hover around 5%, with Philadelphia at about 6%.
Bankruptcy is a process, organized under federal law, that allows consumers and businesses alike to shed unmanageable debts and start over financially. Chapter 7 bankruptcy is a powerful tool that allows debtors in Pennsylvania and across the country to discharge credit card debt, medical bills, and other unsecured loans.
However, don’t be confused by the federal label. The fact that the Bankruptcy Code is federal law, and therefore applies fairly uniformly throughout the country, does not mean that every bankruptcy case will be subject to the same rules. Especially as it pertains to a debtor’s ability to protect personal property, Chapter 7 cases can vary considerably based on which state’s laws apply to the case.
- Pennsylvania Bankruptcy Exemptions: No Protection for the Homestead
- Federal Exemptions Available to PA filers
- Pennsylvania vs. Federal Exemptions
- How much does it cost to file bankruptcy in PA?
- Recently Moved to PA? Your Previous State’s Laws May Apply
- PA Bankruptcy Court Locations
Pennsylvania Bankruptcy Exemptions: No Protection for the Homestead
One of the biggest concerns that people considering bankruptcy have is how their property will be affected. Most consumers have heard the common myth about losing all of your property if you file bankruptcy. While this myth is just that, a myth, your ability to protect property in bankruptcy is contingent upon your state’s exemption laws.
Exemptions laws vary by state, but all of them allow debtors to designate certain necessary property, such as a car, as off limits to the bankruptcy trustee. Pennsylvania bankruptcy laws are a little unusual in that they offer no protection for the debtor’s homestead. Most states, Florida being a famous example, offer laws that prevent creditors, or the bankruptcy trustee, from selling a home in satisfaction of creditor’s claims. By contrast, debtors who choose Pennsylvania exemptions will not be able to protect home equity and may lose real estate to the trustee.
That said, married couples filing a joint bankruptcy can double their exemptions using Pennsylvania’s system. Details on some of the most popular Pennsylvania exemptions are as follows.
No protection here, however, your home’s equity may be able to be protected if you and your spouse own your home as a tenancy by the entirety, or if you instead opt to use federal exemptions. We’ll get into more of that in just a minute.
There is no specific vehicle exemption, but Pennsylvania has a wildcard exemption that will allow you to exempt up to $300 in equity of your motor vehicle or other personal property.
Clothing, school books, Bibles, sewing machines, and uniforms are exempt under Pennsylvania Consolidated Statutes 42-8124.
Up to 75% of wages are protected during a Pennsylvania Chapter 7 bankruptcy.
Under the same statute as personal property, any private retirement plans are exempt so long as proceeds are not used to pay creditors (up to $15,000 per year if deposited at least one year before filing bankruptcy). Public employee benefits are exempt.
Federal Exemptions Available to PA filers
If Pennsylvania’s lack of a homestead exemption seems a bit harsh, it is important to note that consumers who file bankruptcy in PA have the option of using federal exemptions which allow for up to $23,675 of home equity to be protected through the Chapter 7 process. Married couples filing jointly can double the exemption. In addition, Pennsylvania case law has established that property held jointly by a married couple cannot be taken to satisfy the individual debts of one spouse.
As the above homestead discussion demonstrates, PA debtors who own a home with equity will likely utilize federal bankruptcy exemptions. However, those who rent, or who find themselves underwater on their mortgage, may still elect to use PA bankruptcy laws. As I type the list, it becomes pretty obvious that the vast majority of PA debtors will simply use federal exemptions.
Pennsylvania vs. Federal ExemptionsThe top 5 exemptions under Pennsylvania law compared to federal law.
|Type of exemption||Pennsylvania law||Federal law|
|Homestead||None||$23,675 of equity in principal place of residence|
|Personal property||Unlimited amount in clothing, books, uniforms||$12,625 aggregate value on household goods, plus federal wildcard exemption applicable ($1,250 plus $11,850 of any unused portion of your homestead exemption)|
|Vehicle||None, but can use a $300 wildcard exemption||$3,775|
|Wages||75% of wages||Income you've earned but not yet received becomes part of your bankruptcy estate|
|Pension/retirement||Public employee benefits are exempt; private retirement accounts up to $15,000 per year if deposited a year before filing bankruptcy and proceeds do not pay off creditors||Exempt, with a cap of about $1.28 million on IRAs and Roth IRAs|
How much does it cost to file bankruptcy in PA?
The cost of hiring a lawyer to file bankruptcy varies by jurisdiction, however, the filing fees are uniform nationwide. As a starting point, you’ll need either $335 for a Chapter 7 bankruptcy or $310 for a Chapter 13 bankruptcy case. As far as attorney’s fees are concerned, some firms will file a Chapter 7 case for as little as $500 or $600 in fees while others may charge up to $2,000 or more for a Chapter 7.
In my experience, the average cost to hire a law firm to file a Chapter 7 bankruptcy is approximately $1,250. The size of the metropolitan area you live in will be one of the biggest determining factors in how much you must pay a lawyer to get a case filed. To be sure, the cost of bankruptcy in Philadelphia will be greater than the cost in more rural areas, however, shopping for the lowest-priced bankruptcy attorney is usually not a great idea.
Take this advice from San Diego bankruptcy lawyer John C. Colwell:
I recognize that this is America, and getting a good ‘deal’ is one measure of success. I suggest, however, that the good deal in hiring a bankruptcy attorney is obtaining the best representation that you can afford. Note, this concept is completely different that finding the cheapest attorney to represent you in bankruptcy court. Even before the laws were changed in 2005, the concept of hiring cheap counsel to just fill out a bunch of forms was a risky proposition. Could a successful case be prepared and filed for the lowest common dollar? Sure, and that can be achieved under the excessive burdens of the ‘new’ bankruptcy laws, as well. The point is that it’s too much of a risk. Bankruptcy law has always been much more than the simple drafting and filling out of forms. Many well-meaning debtors, looking for the best deal, have been harmed by this simplistic view.
Recently Moved to PA? Your Previous State’s Laws May Apply
A recent move can affect which state’s bankruptcy laws apply to your case. If you’ve just moved to PA, the laws of your previous state may apply to your bankruptcy even though it has been filed in PA with the help of a PA lawyer. The rule is stated below:
If the debtor’s domicile has changed in the last two years, the determining factor for exemption law purposes will be where the debtor resided for the 180-day period preceding the two year period. In other words, we look back two years plus 180 days. Wherever the debtor spent the majority of this 180-day period will be his or her exemption state.
If you’re confused about which laws will apply to your case, discuss the matter with your attorney.
PA Bankruptcy Court Locations
As referenced above, the bankruptcy code is a federal body of law administered by the federal court system. Pennsylvania federal courts are divided into three districts: Eastern, Western, and Middle. To service local populations and ensure that PA residents aren’t forced to drive to only one of three courts, the districts are further divided by division.
We’ve included the PA bankruptcy court locations below.
Eastern District of Pennsylvania
The Eastern District of Pennsylvania is divided into two divisions: Philadelphia and Reading.
If you file a bankruptcy case in the following counties, your 341 meeting of creditors will be in Philadelphia: Bucks, Chester, Delaware, Lancaster, Montgomery and, of course, Philadelphia County.
By contrast, cases filed in these counties will be under the jurisdiction of the bankruptcy court in Reading: Burks, Lehigh, and Northampton.
To visit the Eastern District of PA Bankruptcy Court website, click here.
Middle District of Pennsylvania
The Middle District of PA is divided into two divisions: Harrisburg and Wilkes-Barre.
Cases filed in Adams, Centre, Cumberland, Dauphin, Franklin, Fulton, Huntingdon, Juniata, Lebanon, Mifflin, Montour, Northumberland, Perry, Snyder, Union, and York counties go to Harrisburg, while cases filed in Bradford, Cameron, Carbon, Clinton, Columbia, Lackawanna, Luzerne, Lycoming, Monroe, Pike, Potter, Schuylkill, Sullivan, Susquehanna, Tioga, Wayne, and Wyoming counties go to Wilkes-Barre.
To visit the Middle District of PA bankruptcy court website, click here.
Western District of Pennsylvania
The Western District of PA has three divisions: Pittsburgh, Erie, and Johnstown.
The Pittsburgh division serves the following counties: Allegheny, Armstrong, Beaver, Butler, Fayette, Greene, Lawrence, Washington, and Westmoreland.
The Erie division serves the following counties: Clarion, Crawford, Elk, Erie, Forest, Jefferson, McKean, Mercer, Venango, and Warren.
Lastly, Johnstown serves these counties: Bedford, Blaire, Cambria, Clearfield, Indiana, and Somerset.
To visit the Western District of PA bankruptcy court, click here.
For more information about bankruptcy laws and regulations, visit our Consumer Laws by State guide.