Are Unemployment Benefits Exempt in Pennsylvania Bankruptcy?

Filing for bankruptcy can help people with severe debt and financial problems get a fresh start, but they may lose some assets in the process. If you receive unemployment benefits, you should speak to a bankruptcy lawyer about how to protect those benefits.

Generally, unemployment benefits and other forms of public assistance may be shielded from the bankruptcy process under exemptions for unemployment and other listed benefits. You must claim the right exemptions when you file your bankruptcy petition. These exemptions may be available through the state or federal government, and you must choose from one or the other. In the meantime, your benefits will likely be considered income for bankruptcy purposes and may be used for things like a means test or payment plans.

Ask our Pennsylvania bankruptcy attorneys for a free legal review when you call Young, Marr, Mallis & Associates at (215) 701-6519.

Can You Exempt Unemployment Benefits from Bankruptcy in Pennsylvania?

You may protect your unemployment benefits through exemptions. You must select the exemptions you wish to claim carefully, as you may only choose federal or state exemptions, not both.

Pennsylvania State Bankruptcy Exemptions

Pennsylvania offers numerous bankruptcy exemptions, including exemptions for benefits or assistance you receive from the government. This includes unemployment benefits. However, these protections are weaker than federal exemptions and might not protect benefits that have already been mixed with other financial accounts.

In Pennsylvania, state bankruptcy exemptions allow you to fully exempt public benefits and government assistance. This means you may fully exempt your unemployment benefits from the bankruptcy process.

Federal Bankruptcy Exemptions

Like state bankruptcy exemptions, federal exemptions allow you to fully protect public assistance and government benefits from the bankruptcy process. The difference is that if you claim federal exemptions, all your other exemptions must be federal. You are not permitted to pick some exemptions from the state and some from the federal government.

Even so, federal exemptions tend to be higher and stronger than Pennsylvania exemptions across the board. As such, it may be wise to choose federal over state, depending on your circumstances.

Unemployment Benefits Overpayments

Overpayments are a form of debt, as the government may be trying to recover the benefits it overpaid. This can make protecting your unemployment benefits difficult, as the government may want some of those benefits back when you file for bankruptcy.

During the bankruptcy process, debts related to unemployment overpayments may be dischargeable. Our Pennsylvania bankruptcy lawyers can help you exempt your benefits and discharge overpayment debts, so you do not lose any of the benefits you need.

How Do Unemployment Benefits Factor Into Bankruptcy?

Your unemployment benefits need protection during bankruptcy, but that does not mean they are unimportant in other ways. Your benefits may affect your bankruptcy petition in various ways.

Unemployment Benefits as Income

A huge part of filing for bankruptcy is determining your income. It is one of the main ways bankruptcy courts determine whether you are even eligible for bankruptcy. Income may flow from many different sources, including unemployment benefits.

It is important that we take an accurate accounting of the benefits you have received and will continue to receive throughout the bankruptcy process, as this will largely affect how we report your income.

Passing a Means Test

Certain forms of bankruptcy require that you pass a means test. This test is primarily used for those filing for Chapter 7 bankruptcy, one of the most selected bankruptcy chapters. Your unemployment benefits are considered part of your income and will be used to calculate your means test.

Your income will be compared to the average annual median income of similarly sized households in Pennsylvania. If your income is higher than the state median, we must determine your disposable monthly income by deducting certain expenses from your monthly income.

Funding Payment Plans

You may file under other bankruptcy chapters, like Chapter 13, even if you do not pass a means test. Instead, Chapter 13 allows you to set up payment plans to take control of your debts and pay them off over several years. How your payment plan is structured will depend on your income. Again, your unemployment benefits are part of your income and will factor into your payment plan.

How You Can Protect Your Unemployment Benefits During Bankruptcy

While your unemployment benefits should be fully exempt, they might still be at risk under certain circumstances.

Keeping Benefits in a Separate Account

When unemployment benefits are mixed with other funds, the bankruptcy trustee assigned to your case could argue that the funds have lost their protected status. For example, if you receive unemployment benefits and deposit them in an account you share with a spouse, the trustee may attempt to seize those assets.

Double Check Your Exemptions

Make sure you are claiming exemptions in a way that maximizes your protections. You may not select federal and state exemptions. You must pick entirely from one category or the other.

For example, there is a federal exemption to protect your home during bankruptcy, and whatever you do not use toward a home may be put toward a wildcard exemption. However, there is no state exemption for your home in Pennsylvania. If you want to select the federal homestead exemption, you must make sure all federal exemptions will adequately protect your benefits, as you cannot choose exemptions from both categories.

Spending Your Benefits Cautiously

Your benefits are protected, but the things you buy with them might not be. For example, you may use your unemployment benefits to continue making payments on a car, but the car is not necessarily protected from bankruptcy, unless you claim a vehicle exemption.

Be careful how you spend unemployment benefits, as those assets or property could be liquidated.

FAQs About Unemployment Benefits in Pennsylvania Bankruptcy Cases

Will You Lose Unemployment Benefits When Filing for Bankruptcy in Pennsylvania?

As long as you claim the appropriate exemptions, your right to continue receiving unemployment benefits should remain protected.

How Can You Protect Your Unemployment Benefits During Bankruptcy?

You can protect your unemployment benefits by first claiming state or federal bankruptcy exemptions. You can also protect your benefits by keeping them separate from other funds and avoiding comingling them with other finances. If you mix your benefits with other funds, the protected status of those benefits may be questioned.

Will Unemployment Benefits Affect Your Bankruptcy Petition?

Yes. Even though unemployment benefits may be shielded from bankruptcy using exemptions, they are still factored into calculations of your income, which may affect how you pass a means test or support a payment plan.

Can Unemployment Benefits Lose Their Protected Status During Bankruptcy?

Possibly. It is best to keep any unemployment funds you receive in a separate account from all other funds. If you mix these benefits with other funds, such as those from a spouse in a joint account, the bankruptcy trustee assigned to your case might argue that those funds have lost their protected status, especially if they cannot easily be separated from the other funds in the account.

Talk to Our Pennsylvania Bankruptcy Lawyers About Your Financial Situation Today

Ask our Philadelphia bankruptcy attorneys for a free legal review when you call Young, Marr, Mallis & Associates at (215) 701-6519.