What are Bankruptcy Exceptions and Can They Be Amended in Pennsylvania or NJ?
When filing for bankruptcy, one of the central themes behind the Bankruptcy laws is to provide people with a fresh financial start. Central to that idea is that they need not be destitute when filing. Thus, the Federal Bankruptcy Exemptions were created by Congress to allow bankruptcy filers to retain a certain amount of personal and real property also known as “exempt” property. While not all states allow the federal exemptions, for purposes of this blog article, we are limiting our discussion to these states that allow the federal exemptions. It is important to note that in Pennsylvania and New Jersey, you are allowed to elect state exemptions in lieu of the federal exemptions, however, in most instances, the federal exemptions are chosen.
If you are filing for bankruptcy in Pennsylvania or New Jersey, an experienced bankruptcy attorney at Young, Marr & Associates can help. Call our Pennsylvania offices at (215) 701-6519 or our New Jersey office at (609) 755-3115 for a free consultation today.
What Property is Exempt From Bankruptcy in PA and NJ?
Bankruptcy exemptions determine what property and how much property you can keep when filing a consumer bankruptcy. The amounts allowed under the federal bankruptcy exemptions are governed under 11 USC §522. These exemptions allow a filer to have certain amounts of equity in both real and personal property. At the time of filing, these exemptions are noted in the filer bankruptcy petition. These exemptions include equity in real estate, motor vehicles, household goods, jewelry as well as other personal items. Furthermore, in almost all instances, an exemption is allowed for a tax-exempt pension or retirement account, unmature life insurance and a non-homeowner is allowed an additional exemption known as a “wildcard” exemption to exempt any property that is not specifically enumerated in the code.
The landscape of bankruptcy exemptions was changed after the Supreme Court decided the case of Law v. Segal. In that case, the Supreme Court considered whether bankruptcy courts have the authority to order the debtor’s exempt assets be disallowed upon concealment or non-disclosure, under the broad equitable provisions of §105 of the Bankruptcy Code. The Supreme Court concluded that the Bankruptcy Code did not have authority under its equitable powers to disallow a claimed exemption which would otherwise be exempt under the Bankruptcy section of exemptions, even in cases where the debtor engaged in inequitable or fraudulent conduct, i.e. in bad faith. Thus, the Court determined that federal law provides no authority for Bankruptcy court’s to deny an exemption on a ground not specified in the Code. Thus, the Supreme Court recognized that “whatever other sanctions a Bankruptcy Court may oppose on an honest debtor, it may not contravene express provisions of the Bankruptcy Code by ordering that the debtors’ exempt property be used to pay debts and expenses for which that property is not liable under the Code.” It appears Law v. Segal provided the death of the equitable disallowance of a bankruptcy exemption based upon fraud. Subsequent to Law, most other circuits (including the Third Circuit) had concluded that Law v. Segal places a broad prohibition against denying a debtor’s exemption, even based upon bad faith or prejudice.
Can I Amend My Bankruptcy Exemptions After the Case Has Been Filed?
So where does a debtor now stand if an asset was not listed in a filing and was later discovered by the Trustee or US Trustee? The question clearly becomes an issue of timing. Pursuant to the Law case, if an asset is discovered during an initial filing, it can still be exempted at any time prior to the close of the case regardless of the reason for the non-disclosure. This is in direct contradiction to the law in most jurisdictions prior to this Supreme Court decision. However, there is one specific caveat that has developed. Many courts have now recently examined the issue of whether the same rules apply to cases that are reopened. In these court’s analysis, courts have seemed to reconcile the Law v. Segal decision with Bankruptcy Rule 9006 which allows the Debtor to amend Schedules in a reopened case only if the Debtor establishes the failure to amend before the closure was the result of “excusable neglect”. The Third Circuit in In re Paylor as well as many other Circuits, have determined that a Trustee could deny a Debtor’s right to their exemption or “disallow” a Debtor’s exemption in a reopened case if the failure to include the asset was based upon bad faith rather than excusable neglect.
Since the Law v. Segal determination, it seems that a debtor will be allowed to amend his exemptions at any time prior to the closing of his case even if the asset was not disclosed. Of course, other potential remedies such as an objection to discharge or criminal prosecution may still be available actions by the Trustee/US Trustee. However, it’s clear that a different standard will apply upon an application to reopen a case for purposes of exempting a non-disclosed asset. In that instance, it seems that similar to the landscape pre-Law v. Segal, it will be necessary that a debtor demonstrates that the failure to disclose the asset was based upon excusable neglect rather than bad faith.
Bankruptcy Lawyers Serving Pennsylvania and New Jersey
If you or a loved one is filing for bankruptcy, talk to a Pennsylvania bankruptcy attorney at Young, Marr & Associates today. Our lawyers assist residents of Pennsylvania and New Jersey with Chapter 7 bankruptcy and Chapter 13 bankruptcy filings, mortgage foreclosure, and more. For help with your case, contact our law offices online today or call us at (215) 701-6519 in PA or (609) 755-3115 in NJ for a free consultation.
☑ Been paying credit card balances that seem to never go down?
☑ Lost your job and are now having trouble keeping up?
☑ Attempted to work out a payment arrangement to no avail?
☑ Been notified of a mortgage foreclosure action?
☑ Been denied for a mortgage or other line of credit?
If the answer to any of these questions is “yes” then bankruptcy may be an option that you should consider.