If I File a Chapter 7 Bankruptcy in Pennsylvania, Can I Keep my Home, Car, or Other Personal Items?
Unfortunately, there’s a widespread myth that filing for Chapter 7 bankruptcy in Pennsylvania will cause you to lose your house, your car, and your other personal belongings. This harmful myth has likely stopped thousands of people from filing – but in most cases, it simply isn’t true. On the contrary, most people who file Chapter 7 can keep most or all of their possessions. In fact, Pennsylvania’s bankruptcy laws allow filers to choose between two sets of bankruptcy “exemptions,” which prevent certain assets from being sold off during the process. In this article, the Chapter 7 bankruptcy lawyers of Young, Marr & Associates will separate fact from fiction by explaining when and how you can keep your property after filing bankruptcy in Philadelphia.
Can I Keep My House in Chapter 7?
Myth or fact? “If you file Chapter 7 bankruptcy in Pennsylvania, you’ll lose your house, your car, and all of your personal belongings.”
If you answered “fact,” you may be in for a pleasant surprise. Debtors who file for Chapter 7 frequently retain the bulk of their property, including high-value assets like jewelry, personal vehicles, and even real property.
Each debtor’s situation is unique, and the ability to keep property varies on a case-by-case basis. It depends on factors like how much debt is owed, and how much the property is worth. When it comes to real property, one crucial question will play a large role in determining whether you can keep your house: how much equity do you have in your home?
To find out, start with your home’s fair market value, then subtract the amount you still owe on your mortgage. For example, if the fair market value of the house was $200,000, but you still owed $150,000, you would have $50,000 in equity. Depending on the figure you reach, there are two potential outcomes.
The first outcome is that you don’t have equity. It may seem counterintuitive, but this can actually be good news. If you don’t have equity in your home, the bankruptcy trustee – in other words, the person appointed to liquidate your assets – will not sell the property, because it will not yield payments to your creditors.
The second outcome is that you do have equity. If you have equity, you may be able to protect it by using bankruptcy exemptions.
Pennsylvania lets debtors choose between two sets of bankruptcy exemptions: federal bankruptcy exemptions, and Pennsylvania bankruptcy exemptions. Since Pennsylvania’s exemptions do not include a homestead exemption – in other words, the exemption that some debtors use to protect their homes – it may be more logical to choose the federal exemptions. However, exceptions sometimes apply, particularly for married couples, which is one of the reasons why consulting with experienced bankruptcy lawyers is so important for debtors.
The federal homestead exemption covers up to $23,675 in equity, though this figure may be increased with a “wildcard” exemption, or potentially even doubled. Doubling may be possible if:
- You and your spouse filed a “joint” bankruptcy, meaning you filed for bankruptcy together, similar to filing a joint tax return.
- The property belongs to both you and your spouse.
If exemptions are not enough to cover 100% of your equity, your home may be sold by the trustee. However, you will get to keep the amount you exempted.
If I File Chapter 7 in Pennsylvania, Can I Keep My Car?
Outside of major cities like Philadelphia, most Pennsylvanians rely on their cars (or other vehicles) to commute, attend school, run errands, and transport family members. For all of these reasons, losing your car can be devastating – especially if you don’t have access to reliable public transportation.
Fortunately, you may be able to keep your car if you file for Chapter 7 bankruptcy. It depends on how much your vehicle is worth, whether you are up to date on your auto loan payments, and whether you decide to use the state or federal bankruptcy exemptions.
If you owe unpaid car loan payments, you will typically not be able to keep the vehicle, even with bankruptcy exemptions, unless you can catch up prior to filing. If you’re behind on your auto loan payments, there are two basic strategies for getting current and preventing the sale of your vehicle:
- You may be able to reaffirm the loan. Reaffirming a car loan requires you to agree to a new loan, then cover the unpaid amount as part of your new loan agreement. Be advised that the lender might not agree to this type of plan.
- You may be able to redeem the vehicle. Redeeming a car (also called “loan redemption”) requires you to make a lump sum payment to the lender. The amount of the payment will be equal to the vehicle’s market value.
If you are current on your payments, protecting your vehicle will be easier. The federal motor vehicle exemption allows you to cover up to $3,775 in car equity. In stark contrast, Pennsylvania does not have a motor vehicle exemption. However, debtors who choose to use the Pennsylvania exemptions may protect up to $300 in vehicle equity by using Pennsylvania’s wildcard exemption.
What Property Can You Keep in Chapter 7 Bankruptcy?
The answer to this question depends on whether you select the Pennsylvania bankruptcy exemptions or the federal bankruptcy exemptions. It’s important to understand that bankruptcy laws prohibit mixing and matching both sets. You have to pick one – and stick to it.
Since bankruptcy exemptions can make the difference between keeping and losing valuable property, it’s crucial to choose wisely. Fortunately, you won’t have to make the decision on your own. Our Bucks County bankruptcy lawyers have handled over 10,000 successful filings, and are ready to apply our comprehensive experience to your case.
In addition to the exemptions we’ve already covered – namely the homestead exemption (which applies to real property) and the motor vehicle exemption (which applies to cars, trucks, SUVs, and so forth) – other federal bankruptcy exemptions include the following:
- Crime Victim Compensation – Unlimited
- Disability Benefits – Unlimited
- Health/Medical Devices – Unlimited
- Household Goods – $12,625
- Jewelry – $1,600
- Personal Injury Awards – $23,675, with some exceptions
- Public Assistance Benefits – Unlimited
- Retirement Accounts – Unlimited, with exceptions for IRAs and Roth IRAs ($1,283,025), including 401(k)s
- Social Security Benefits – Unlimited
- Tools of the Trade – $2,375
- Unemployment Benefits – Unlimited
- Veterans Benefits – Unlimited
- Wildcard – $1,250, plus up to $11,850 from any unused portion of the federal homestead exemption
By comparison, the Pennsylvania bankruptcy exemptions cover the following:
- Crime Victim Compensation – Unlimited
- Miscellaneous – Allows debtors to protect property from business partnerships
- Personal Property – Allows debtors to protect bibles, clothing, sewing machines, textbooks, and uniforms
- Retirement Accounts – Unlimited, with exceptions for IRAs and Roth IRAs ($1,283,025)
- Wages – Protects employee wages that are yet to be paid
- Wildcard – $300, applicable to any type of property
As you can almost immediately see by comparing these two lists, there are a few major differences between the state and federal exemptions in bankruptcy. Our Montgomery County bankruptcy attorneys can evaluate your financial situation to determine which exemptions make better financial sense for you and the goals you are trying to achieve.
Philadelphia Chapter 7 Bankruptcy Lawyers Serving Bucks County, PA
Filing for Chapter 7 doesn’t necessarily mean that you will lose your home, your car, or your other belongings to the bankruptcy trustee. However, it’s important to make sure that Chapter 7 is truly the best option for you. Depending on why you are filing, how much income you earn, whether you are in jeopardy of foreclosure, and other factors, it may be more beneficial to file for Chapter 13, or to explore other options like loan modifications, which is a consideration that our Chapter 13 bankruptcy attorneys are always glad to assist you with.
Bankruptcy laws are complex – and your property is riding on the line. Before you make any bankruptcy decisions, be sure to consult with experienced bankruptcy attorneys who are knowledgeable about state and federal bankruptcy rules. At the law offices of Young, Marr & Associates, we have been representing debtors and married couples in individual bankruptcy cases and joint bankruptcy cases for over three decades, including both Chapter 7 and Chapter 13.
If you’re giving thought to filing bankruptcy in Pennsylvania, ask our attorneys about how we can help. We offer free initial consultations, and will keep your information private. To schedule your free legal consultation with Young, Marr & Associates, contact our law offices online, or call our Philadelphia bankruptcy lawyers at (215) 701-6519 to get started.