Bankruptcy Exemptions

Pennsylvania Bankruptcy Exemptions

Filing for bankruptcy does not mean that all your property will be taken from you and given to your creditors.
Bankruptcy laws provide for the protection of certain property so as not to leave the debtor in destitution and without the ability to bounce back. For example, in Pennsylvania property such as clothes, books, uniforms, sewing machines and other equipment are all exempt. There are many additional exemptions allowed, and for more information, continue reading.

The exemption laws vary from state to state, but in Pennsylvania, you have a choice to use either the exemptions found in the U.S. bankruptcy code, or the exemptions rules provided under Pennsylvania law. However, you must use either the federal or the state law, a debtor cannot mix and match between the provisions. The decision of which set of laws to use is a very important one, and the factors influencing that decision vary from person to person. That is why it is important to have an experienced bankruptcy attorney to go over your assets, so that you both can make strategic and informed decision.

Call today to schedule a free consultation with an experienced bankruptcy attorney at The Law Offices of Erik B. Jensen. (215)-546-4700.

IS MY INCOME SAFE? WHAT ABOUT MY SOCIAL SECURITY OR VETERANS BENEFITS?

Vital income such as social security and veteran’s benefits are protected and exempt from creditors. Even if you opt to go with the Pennsylvania rather than the Federal Exemption, your social security, civil service, and veterans benefits are all exempt from bankruptcy, and thus safe.

Also, your wages earned but not yet paid by your employer are exempt from creditors attachment. This means that creditors cannot “garnish” your wages, or force your employer to hold back a portion of your paycheck each week.

DOES PENNSYLVANIA HAVE A HOMESTEAD EXEMPTION

A homestead exemption is designed to protect a debtors’ principle place of residence. Most states do have a homestead provision, but Pennsylvania isn’t one of them. However, there is some relief if you are married and purchase your home with your spouse. In Pennsylvania, when a married couple purchases a home together they own it as “tenants in the entirety” which is a form of ownership unique to marriage.

As tenants in the entirety, one spouse is not penalized by the debts of the other. Therefore, property held as a tenancy in the entirety is exempt from bankruptcy and not ascertainable by creditors.

WHAT IF I’M NOT MARRIED

As previously mentioned, when filing for exemptions you may use either the Federal code or the Pennsylvania code. Whether you are married, single, or own your own home are all relevant and important factors in determining with your attorney the most advantageous set of exemption laws to use. Luckily if you are single, you can still exempt your principle place of residence using the federal code. However, the decision to use the federal code should be made in light the fact that you will then be prohibited from using any of the state exemptions, which may provide greater protection.

WHAT IS “DOUBLING”

Another benefit of being married is that you and your spouse can file jointly in Pennsylvania. When you file jointly each spouse may claim the full amount of each exemption. This is informally called “doubling.” However, both spouses must use the same set of exemptions (state or federal). Therefor, if one spouse used state bankruptcy exemptions, the other spouse must also use the state exemptions, and vice versa.

SECURED VS. UNSECURED DEBT

When you buy a car or a home, often you use the property itself as collateral incase you default on your loan payments. This is called “secured debt,” and the financial institution/creditor that provided the loan has a “security interest” in this property. Exemption laws do NOT protect you from losing property once you’ve voluntarily pledged the property as security for a loan.

However if the debt is unsecured, say $20,000 of credit card debt for example, the creditors cannot go after your exempt property. While the credit card company (creditor) may still get a judgment lien on your property, if this property is exempt, your lawyer can have the bankruptcy court dismiss it.

So for example, let’s say you want to pay off your credit card debts by taking out a home loan, using your home as the collateral. Now, since you voluntarily used your home as security, you will no longer be protected by the homestead exemption (federal).

ARE INSURANCE PAYMENTS EXEMPTED?

Most insurance proceeds are exempt, such as workers compensation, payments provided by a fraternal benefit society, group insurance or disability insurance. Payments pursuant to other insurance policies are also protected up to $100 per month as long as the insured is the beneficiary. Whether your life insurance proceeds are protected depends on the policy itself. As long as your policy prohibits the proceeds from being used to pay creditors, it is protected. Or if the beneficiary for your life insurance is your spouse, your children or other dependent relative, it is also exempt.

IS MY RETIREMENT SAFE?

Different rules apply to different kinds of employees. For example, public school employees and other state employees have different rules than nonpublic employees. For nonpublic employees, as long as their pension plan or contract provides that the “pension or annuity shall not be assignable” it is safe. A 401k plan is general exempt, however, there are rules governing how much is protected depending on and how much money was contributed, and when it was contributed.

If you think you will need to file for bankruptcy in the near future, it is important to speak with an experienced bankruptcy attorney. Your attorney will guide you through all the important decisions, and allow you to exempt as much property as possible under the law. Call (215)-546-4700, and schedule a free consultation with an experienced bankruptcy attorney at Erik B. Jensen Law.