In Pennsylvania, as in all states, bankruptcy is a federal legal process through which individuals or businesses can obtain relief from their debts. Pennsylvania follows the U.S. Bankruptcy Code, as do all states, but its bankruptcy exemptions differ from federal exemptions.
How Bankruptcy Works in Pennsylvania
Bankruptcy in Pennsylvania generally works in the same way it does in other states, since all states follow the U.S. Bankruptcy Code. Bankruptcy offers debt relief to individuals and businesses that cannot pay their debts. The bankruptcy process:
- Creates dischargeable debts for the party filing. Depending on the type of bankruptcy a debtor files for, they may have some or all of their debts discharged.
- Creates an automatic stay from creditor harassment. When a debtor files for bankruptcy, it prohibits creditors from contacting them or attempting to collect debts during the bankruptcy process.
- Helps the debtor keep their assets. Depending on the type of bankruptcy, a debtor may be able to keep some of their assets, like a home or vehicle.
- Gives the debtor a fresh start. Bankruptcy can provide a way for a person or business to start over financially.
Bankruptcy can also have negative consequences. For example, it can affect the debtor’s credit score to the the degree that it may be difficult for them to get credit in the future.
What Are Different Types of Bankruptcy?
The U.S. Bankruptcy Code provides for several different bankruptcy chapters:
- Chapter 7: Used by both individuals and businesses to sell nonexempt assets in order to pay off debts. This chapter is most commonly used by those who cannot pay their debts and have little to no assets.
- Chapter 9: Used by municipalities for protection against creditors while developing a debt adjustment plan.
- Chapter 11: Used by businesses to restructure their debts while continuing operations.
- Chapter 12: Designed for family farmers and fishermen, allowing them to reorganize their debts while creating a repayment plan for creditors.
- Chapter 13: Used by individuals to reorganize their debts and create a repayment plan for creditors over a period of three to five years.
- Chapter 15: Allows individuals and businesses to file bankruptcy in the U.S. while holding assets and debts in other countries.
Differences Between Chapter 7 and Chapter 13
Chapter 7 bankruptcy and Chapter 13 bankruptcy are two of the most common types of bankruptcy available in the U.S. Here are some key differences between the two:
Chapter 7 Bankruptcy
Chapter 13 Bankruptcy
Debtor must pass a “means test,” used to determine if they have enough disposable income to pay their debt. If their income is below the median income for the average Pennsylvania household, they will likely qualify. If the debtor’s income is above that of the average household, they may still be able to qualify if they can show they do not have enough disposable income to pay the debt.
Debtor must have a regular source of income, and their debts must fall below certain limits. They cannot have unsecured debt, such as medical bills or credit card debt, of more than $465,275, or secured debt, such as a mortgage or a car loan, of more than $1,257,850.
Chapter 7 bankruptcy (known as "liquidation" bankruptcy) involves the sale of the debtor’s nonexempt assets to pay their debts. If the debtor does not have assets that can be sold, their debts will be discharged.
Chapter 13 bankruptcy (known as "reorganization" bankruptcy) allows the debtor to create a repayment plan to pay their debt over a period of three to five years. The debtor makes payments to a bankruptcy trustee, who then distributes the funds to creditors.
Most unsecured debts, like credit card debt and medical bills, can be discharged, but some debt, such as certain student loans and child support payments, cannot.
Debtor pays off a portion of the debt. The remainder may be discharged when they complete the repayment plan.
Can negatively impact the debtor's credit score and credit report.
Can negatively impact the debtor's credit score and credit report. Easier for a debtor to rebuild their credit after Chapter 13 because they can pay off some of the debt and establish a record of making payments on time.
How to Find a Bankruptcy Lawyer in Pennsylvania
A Pennsylvania debtor considering bankruptcy may need an attorney as bankruptcy laws are often too complex for individuals and businesses to navigate on their own. When looking for a bankruptcy attorney, it’s essential to find one who is knowledgeable about state and federal laws.
Debtors in Pennsylvania can find a bankruptcy lawyer in several ways. They can:
- Ask for bankruptcy attorney referrals from friends, family and co-workers.
- Contact the Pennsylvania Bar Association, which can provide them with a list of attorneys specializing in bankruptcy law in their area.
- Search online directories for a bankruptcy attorney. For example, FindLaw has an online attorney locator, as does Justia.
- Attend a bankruptcy clinic through a local legal aid organization. Some nonprofit groups offer free or low-cost bankruptcy clinics where a debtor can meet with an attorney to obtain advice.
Debtors should take the time to meet a few bankruptcy attorneys and ask about their experience, fees and approach to handling bankruptcy cases before deciding on one.
Bankruptcy Exemptions in Pennsylvania
Pennsylvania's bankruptcy exemptions don't protect the state's residents as much as some other states protect theirs. As a result, many parties filing for bankruptcy in Pennsylvania use the federal bankruptcy exemptions instead.
Pennsylvania Bankruptcy Exemptions
Federal Bankruptcy Exemptions
None, but tenancy by the entirety properties might have some protections.
$27,900 for individuals and $55,800 for spouses who own property together.
Tenancy by the entirety properties may have protections in some jurisdictions.
Motor Vehicle Exemptions
Tools of the Trade Exemptions
$300 for any property, which may include real property, cash or securities.
$1,475, plus up to $13,950 of unused homestead exemption.
Personal Property Exemptions
Clothing, school books and bibles
$700 per item or $14,875 total for: Animals, appliances, books, clothing, crops, furnishings, household goods, musical instruments.
$1,875 in jewelry.
Payments for lost earnings.
$27,900 in personal injury recoveries.
Wrongful death recoveries for a person on whom the debtor depended.
Alimony and child support.
Pensions and Retirement Accounts/Benefits
Pensions for state and local government employees and
private retirement benefits.
Retirement accounts (tax-exempt)
$1,512,350 of IRA and Roth IRA accounts
How to File for Bankruptcy in Pennsylvania
The bankruptcy filing process in Pennsylvania involves several steps. Before filing in the Keystone State, the debtor should:
- Determine the type of bankruptcy. Each bankruptcy chapter has its own specific requirements for meeting a debtor’s needs.
- Take a credit counseling course. Before the debtor can file for bankruptcy in Pennsylvania, they must complete a credit counseling course through an authorized credit counseling provider.
- Collect financial documents. Debtors must provide the bankruptcy trustee and bankruptcy court with detailed information about their finances. These documents should support the debtor’s bankruptcy case and will typically show income, expenses, debts and assets. Types of documents include pay stubs, bills and tax returns.
- Complete bankruptcy forms. There are several forms that a debtor must complete during the bankruptcy process.
- File a bankruptcy petition. After gathering the necessary documents and completing the forms, the debtor will file a bankruptcy petition with the bankruptcy court. They’ll also pay a filing fee, which varies according to the chapter they file.
- Attend required bankruptcy education course. After filing the bankruptcy petition, the debtor must attend an approved bankruptcy education course. Through it they will learn about the bankruptcy process and how to manage their finances after the bankruptcy case ends.
- Meet with a bankruptcy trustee. After filing a bankruptcy petition, the court will appoint a bankruptcy trustee to oversee the debtor’s case. The debtor will discuss their case with the bankruptcy trustee and the terms of the filing at a meeting of creditors, which is also known as a “341 meeting.”
Bankruptcy Court Locations in Pennsylvania
Pennsylvania's bankruptcy courts are divided into three districts – Eastern District, Middle District and Western District.
Bucks, Montgomery, Delaware,
Wilkes-Barre, Harrisburg, Williamsport
Adams, Cumberland, Dauphin, Franklin, Fulton, Huntington, Juniata, Lebanon, Mifflin, Perry Snyder, York, Bradford (served by Williamsport and Wilkes-Barre) Cameron, Centre, Clinton, Lycoming, Montour, Northumberland, Potter, Sullivan, Tioga, Union, Carbon, Columbia, Lackawanna, Luzerne, Monroe, Pike, Schuylkill, Susquehanna, Wayne, Wyoming
Pittsburgh, Erie, Johntown
Bedford, Blair, Cambria, Clearfield, Somerset, Crawford, Elk, Erie, Forest, McKean, Venango, Warren, Allegheny, Armstrong, Beaver, Butler, Clarion, Fayette, Greene, Indiana, Jefferson, Lawrence, Mercer, Washington, Westmoreland
FAQs About Bankruptcy in Pennsylvania
How much debt do you have to have before declaring bankruptcy?
There is no specific amount of debt that you have to have before you can file for bankruptcy. However, in a Chapter 13 bankruptcy, you cannot have unsecured debt, such as medical bills or credit card debt, of more than $465,275 or secured debt, such as a mortgage or car loan, of more than $1,257,850.
Does bankruptcy give you a fresh start?
Yes. Bankruptcy can provide a way for you to have a financial fresh start by discharging your debts and allowing you to rebuild credit.
What are the benefits of bankruptcy?
There are several potential benefits to filing for bankruptcy. Some of the main benefits of bankruptcy include a discharge of your debts, relief from creditor harassment and the protection of your assets.
How long does bankruptcy take?
Chapter 7 bankruptcy is the fastest type of bankruptcy – it can take as little as three to six months to complete a case. Chapter 13 bankruptcy involves the creation of a repayment plan that lasts for three to five years. It can take several months to a year to complete a Chapter 13 bankruptcy case.
- U.S. Courts.Gov: Counties Served
- U.S. Courts.Gov: Court Locations
- U.S. Courts. Gov: Court Locations
- CaseText: 42 Pa. C.S. Section 8123 General Monetary Exemption
- PA Legislature: Section 8124 Exemption of Particular Property
- Cornell Law: 11 U.S. Code Sction 522 - Exemptions
- Justia: Pennsylvania Bankruptcy Lawyers
- FindLaw: Pennsylvania Lawyers and Law Firms Near You
- PABar: Find a Lawyer
- U.S. Courts: Bankruptcy Basics
- U.S. Courts.Gov: Bankruptcy Forms
Michelle Nati is an associate editor and writer who has reported on legal, criminal and government news for PasadenaNow.com and Complex Media. She holds a B.A. in Communications and English from Niagara University.