What does it mean to exempt property?
Exemptions in bankruptcy refer to the property that is set aside for debtors as a part of their fresh start. In state courts, the term refers to the things that a debtor can keep if a creditor makes a levy on their property.
In a Pennsylvania bankruptcy, debtors can choose to use either the state exemptions, or the federal bankruptcy exemptions. Because the state exemptions are limited, most debtors choose the federal bankruptcy exemptions.
What property can be exempted in a Pennsylvania Bankruptcy
The federal bankruptcy exemptions include up to $23,675.00 in equity in a home (equity is the difference between what the home is worth, and what is owed on it) and a motor vehicle worth up to $3,775.00. Other exemptions (with some dollar limits) apply to household goods, jewelry, and work tools. The dollar amounts are adjusted every three years – the last adjustment was in 2016.
There is also a “wildcard” exemption, which can be added to the above amounts, or used for any other property. The wildcard is $1,250.00, plus one half of the unused portion of the homestead exemption. This means that if you don’t own a home, or if your equity is less than the amount of the exemption, the wildcard exemption is increased.
If a Husband and Wife file a joint case, each can claim an exemption for property that is jointly owned, doubling the amount which can be exempted.
Our Pennsylvania state exemptions are not very generous. They include up to $300 in anything (an amount which hasn’t changed in at least 100 years), plus a few specific items such as Wearing apparel, Bibles and school books and Sewing machines. Pennsylvania does provide protection for assets owned by Husband and Wife as tenants by the entireties, so long as the debt is only owed by one spouse. Pennsylvania is also somewhat unique in that it does not allow wage garnishment in most situations (exceptions include claims for support, for certain judgments of landlords, claims by PHEAA for student loans, and for criminal restitution).
Other statutes provide protection (in or out of bankruptcy) for specific kinds of property, such as social security benefits, and most retirement plans.
How to protect your bankruptcy exemptions.
When filing a bankruptcy petition, exemptions are claimed in Schedule C. It is important to list all of your property – exemptions may be denied where property has not been disclosed. In some cases, it may be necessary to obtain an appraisal, or other evidence of fair market value, in order to determine whether something can be exempted. These are questions that should be carefully reviewed with your bankruptcy attorney before a case is filed.
What if I have property that is not exempt in Bankruptcy?
If a debtor in a Chapter 7 Bankruptcy case has property worth more than what they can exempt, the trustee can use the non-exempt property to pay creditors. Most debtors facing this situation don’t file a Chapter 7, but may choose to file a Chapter 13 payment plan which would allow them to keep their property.