Pennsylvania Bankruptcy Laws
- What is bankruptcy?
- Will I lose everything if I file for bankruptcy?
- What does filing for bankruptcy entail?
- What is the difference between "straight" bankruptcy and "wage-earner" bankruptcy?
- Is filing bankruptcy in Pennsylvania different than in other states?
- Will I be treated differently upon filing bankruptcy?
- Will bankruptcy prevent my wages from being garnished?
- What are debts that are not dischargeable under federal bankruptcy law?
- What is a 341 meeting?
- Can I transfer my assets to someone before filing for bankruptcy?
- What is an automatic stay in bankruptcy?
- What is a discharge in bankruptcy?
- Can taxes be discharged in bankruptcy?
- What is bankruptcy?
Bankruptcy is a court proceeding where people or sole proprietorship businesses that are unable to meet their obligations and are at risk of losing their assets turn for protection.
There are several options in filing a bankruptcy. There is Chapter 7, 9, 11, 12 and 13 relief available. Chapter 7 and 13 are the forms most used by people and small businesses.
The decision to file bankruptcy should not be taken lightly. It will have serious effects on your credit rating and on your ability to obtain credit in the future. We offer a free consultation to determine if bankruptcy is right for you.
- Will I lose everything if I file for bankruptcy?
NO! Several exemptions in the bankruptcy code protect people from losing many of their assets. Generally, you are allowed to exempt the following: approximately $20,000 equity in your home ($40,000 for joint ownership), a normal household full of furniture and furnishings, $3,000 equity per person in a vehicle and $2,000 in tools of your trade, $9,850 household goods, and $975 in cash or other assets. There are other exemptions, also. Of course, with secured debt like your home or your car, you will still have to make the payments if you wish to keep the item. IRA and other retirement accounts are also protected along with using state exemptions to protect homes with more equity.
- What does filing for bankruptcy entail?
The initial step, when you are considering filing for bankruptcy protection, is meeting with a bankruptcy attorney. During your free consultations with your attorney, you should be prepared to provide the following types of information:
- A list of all of your creditors (including addresses, account numbers, and copies of your latest statements)
- Your recent tax returns (federal and state)
- Your recent paystubs and bank statements (for at least the last 2 months)
- A list of your monthly living expenses
After you have consulted with your attorney and provided a list of all your assets and debt obligations, a bankruptcy petition is then filed along with a schedule of assets and liabilities. A statement of financial affairs is also filed and the filing fee is paid. While you can choose to reaffirm debts, you must list all your debts on the schedule. If you leave a credit card debt off the schedule in order to keep the card, you are not guaranteed continued access to credit.
There will be at least one meeting of creditors that you will be required to attend and answer questions under oath from the trustee and any creditors. Discharge usually occurs between three and six months from filing.
- What is the difference between "straight" bankruptcy and "wage-earner" bankruptcy?
Straight bankruptcy (Chapter 7) refers to proceedings involving an individual debtors (or married debtors) who want to wipe out their debts in one shot by liquidation and then start afresh financially. Wage-earner bankruptcy or debt consolidation (Chapter 13) is when a person or entity opts for a repayment plan where debts can be repaid over several years.
- Is filing bankruptcy in Pennsylvania different than in other states?
Although filing bankruptcy is governed by federal laws, each state has certain individual requirements and specifications. Pennsylvania bankruptcy laws differ from other states in the following areas:
- Qualification for Chapter 7 consumer bankruptcy: After deducting certain expenses, your income must be no more than the defined median income in order to qualify for Chapter 7 bankruptcy. As of March 15, 2009, the median income for a single wage earner in Pennsylvania is $44,699. A family of two can earn up to $53,011, and the amount increases based on the number of family members.
- Exemption schemes: An exemption scheme is essentially a list of the items you can keep, as defined by bankruptcy laws. Pennsylvania offers a choice of two consumer exemption schemes:
- State exemptions are useful when debt is the debt of only one spouse
- Under the first scheme, you can keep your home, life insurance payments, alimony and child support, pensions and retirement benefits, up to $10,775 in household goods, and a variety of other items.
- The second exemption scheme allows you to keep wearing apparel, bibles and school books, sewing machines, qualified retirement funds and accounts, insurance proceeds, Social Security and workers compensation benefits, and additional items.
Naturally, exemptions differ when commercial bankruptcy is being filed.
- Will I be treated differently upon filing bankruptcy?
11 U.S.C.S. § 525 prohibits governmental units and private employers from discriminating against an individual by denying or terminating employment, or denying a student grant, loan, loan guarantee, or loan insurance, etc., solely because that person had filed a bankruptcy petition or failed to pay a dischargeable debt.
It is important to note that most major credit card companies access national credit report agency databases to determine who has filed for bankruptcy protection. A bankruptcy filing can appear on your credit report for up to 10 years from the date of discharge.
- Will bankruptcy prevent my wages from being garnished?
Yes. Creditors will not be able to garnish your wages for debts incurred prior to the filing of bankruptcy. However, there are some exceptions for child support and other family support garnishments. If you have questions about wage garnishment and bankruptcy, it is important to speak to an experienced bankruptcy attorney, such as those at Cibik & Cataldo, P.C., to discuss your options.
- What are debts that are not dischargeable under federal bankruptcy law?
Nondischargeable debts are those which survive a bankruptcy proceeding, i.e., the person filing for bankruptcy has to pay those debts despite filing for bankruptcy and the creditor can collect it as his/her right. These are some of the debts that are nondischargeable under 11 U.S.C.S. § 523:
- Some domestic support obligations
- Child support
- Customs duties
- Local and federal taxes if applicable
- Student loans or government guaranteed loans
- Recent large purchases for luxury goods bought just prior to filing bankruptcy
- Fines or penalties imposed by government agencies, such as criminal fines
- Fraudulent debts
- Cash advances made just prior to filing bankruptcy
- What is a 341 meeting?
Between 20 to 40 days upon filing for bankruptcy, the trustee typically calls for a meeting with the default debtor and his or her creditors, wherein the debtor is required to take oath before answering questions related to his or her property. This is termed as the first meeting of creditors and is also called a 341 meeting or hearing. It is not mandatory for all creditors to be present and the meeting is presided over by a bankruptcy trustee.
- Can I transfer my assets to someone before filing for bankruptcy?
No. If assets are transferred and the debtor did not receive a reasonable value for the property, the bankruptcy trustee can recover such assets within a year of the bankruptcy. If the transfer was made to keep assets from creditors, the debtor's bankruptcy discharge could be denied.
- What is an automatic stay in bankruptcy?
When a debtor files for bankruptcy, an automatic stay is granted under 11 U.S.C.S. § 362 to prevent the creditors from seeking any recourse for collection of debts against the default debtor. The automatic stay prevents foreclosures and repossessions. Newly enacted law provides for lifting of the automatic stay as to secured or leased property within 30 days after the filing of a bankruptcy petition if the debtor was dismissed from a previous bankruptcy case within one year of the filing of the existing case and automatic stay shall be lifted where individual debtor has had two or more prior bankruptcy filings dismissed within the preceding year.
- What is a discharge in bankruptcy?
The term discharge in the bankruptcy context refers to an order granted by the court which releases the debtor from the payment of certain debts and which prohibits creditors from attempting to collect the same from the debtor.
- Can taxes be discharged in bankruptcy?
There is a popular misconception that taxes are not dischargeable in bankruptcy. In fact, taxes are often dischargeable in bankruptcy. There are complicated rules governing the dischargeability of tax liabilities. Generally, taxes that are less than three years old since assessment are priority taxes and may not be discharged. Any taxes that are over three years old from the date of assessment are not priority taxes and may be discharged in a bankruptcy action.
If the Internal Revenue Service or the State of Pennsylvania has filed a tax lien, the tax is still dischargeable if it is over three years old. The tax lien creates another problem, however. While the tax is discharged, the lien survives bankruptcy and remains attached to the debtor’s assets, to the extent of the value of the debtor’s property at the time of the bankruptcy. The Internal Revenue Service or the State of Pennsylvania may seek to recover that amount from the assets of the debtor, even after the discharge in bankruptcy.
Past due taxes create a unique situation in bankruptcy. Taxing authorities are entitled to preferential treatment and payment. Generally, if a tax is over three years old from the time it was assessed—or from when the return was filed—it can be discharged in bankruptcy. Taxes less than three years old are not dischargeable and are entitled to payment in full, plus interest. Most penalties, however, are discharged in bankruptcy.
