See below for our Philadelphia area bankruptcy attorneys' answers to common questions about Pennsylvania bankruptcy and non-bankruptcy alternatives. If you have other questions or wish to discuss your financial situation, give us a call.
You may wish to review your financial situation with a bankruptcy attorney if you are experiencing any of the following:
A good bankruptcy attorney will review all of your options with you, such as debt settlement, debtor defense, mortgage foreclosure defense, and mortgage modification, not just bankruptcy. In fact, a visit to an experienced bankruptcy attorney may help you avoid bankruptcy, if there are viable alternatives. If you do need to file for bankruptcy, your attorney should thoroughly explain the chapters of bankruptcy available to you and the pros and cons of each. >>More
In short, bankruptcy is a legal procedure that eliminates or restructures the debt of people who cannot pay their debts because of a variety of circumstances. There are several types or “chapters” of bankruptcy, but the most common are Chapter 7 and Chapter 13.
Chapter 7 bankruptcy is a federal procedure that, if you qualify, allows you to eliminate some or all of your debts. Most debt is dischargeable under Chapter 7, although there are a few exceptions. In the vast majority of Chapter 7 cases, the debtors keep all of their personal property, such as cars, household goods, furnishings, retirement accounts, personal items, etc. Moreover, it is often possible for debtors to keep their home.
One of the major advantages of Chapter 7 is that the process is short. Most Chapter 7 cases take about four months from the time that you file until you receive your discharge of debt. Thus, Chapter 7 gives you the opportunity to get a fresh financial start in a relatively brief period. >>More
Chapter 13 bankruptcy is a payment arrangement that allows you to pay back some, but not necessarily all, of your debt. Chapter 13 is often a good solution for people who do not qualify for Chapter 7 because their incomes are too high. However, Chapter 13 is not limited to high-income earners. If you are behind on payments to a secured creditor (such as a mortgage or car loan) and wish to keep the property, Chapter 13 may allow you to do so. >>More
Debt negotiation, also called debt settlement, can be an alternative to bankruptcy for many people. In debt negotiation, your attorney negotiates with your creditors with the goal of reaching a settlement for significantly less than the full amount owed. Under the right circumstances, debtors have settled debts for a fraction of the initial balance. Although not all cases are appropriate for debt negotiation, it can be a valuable tool in dealing with creditors. >>More
If your lender has filed or is threatening a foreclosure action, mortgage foreclosure defense is a possible alternative to bankruptcy. Foreclosure defense can help keep you in your home by raising legitimate defenses to a foreclosure action (even suing the bank when appropriate). Many lenders have wrongfully foreclosed upon homeowners, engaged in predatory lending practices, and made egregious mistakes in both setting up the mortgage loan and foreclosing on the homeowner. Mortgage defense is about forcing the banks to follow the rules. For more on foreclosure defense, see “Foreclosure Defense and Bankruptcy” in our “Stopping Pennsylvania Foreclosure” series. >>More
A deed in lieu of foreclosure is a deed negotiated with a mortgage lender whereby the borrower conveys to the bank all interest in the mortgaged property in complete satisfaction of a loan that is in foreclosure or in danger of foreclosure.
Not unless they want to find themselves in trouble with the court. Immediately upon filing for bankruptcy, something called the “automatic stay” goes into place. Once they have notice of your bankruptcy, creditors and debt collectors are barred from trying to collect against you in any way. There are penalties if a creditor violates the automatic stay.
To qualify for Chapter 7 bankruptcy, your average gross income for the last six months must be below the state median income for your family size. (You can find the current Pennsylvania State Median Income figures here.) If your income is above the median, you must take a “means test” to determine if, after taking into account your allowable expenses, you qualify for Chapter 7.
The means test is not as ominous as it sounds, but it is complex and must be completed very carefully to avoid complications down the line. We can help you determine if you qualify for Chapter 7. (Often you can Avoid the Means Test altogether.) If you do not qualify for Chapter 7 after completing the means test, you may still be eligible for Chapter 13 bankruptcy. For more information on means testing, see our post on High-Income Chapter 7. >>More
Quick Note: Social Security benefits do not count towards the means test, although they do count as current income.
Most debtors can still file for bankruptcy if they otherwise qualify. The 2005 law requires some additional steps, but most people who would otherwise be eligible will still do so under the new law.
A typical Chapter 7 case takes only four months from the date the case is filed to completion. At the end of the process, you will receive a “discharge” that eliminates all of your debts, with the exception of certain non-dischargeable debts (some taxes, student loans, etc.).
Chapter 13 payment plans last from 36 to 60 months. In most instances, you will receive a “discharge” of any remaining dischargeable debt when you complete the plan.
There are some exceptions, but the basic rules concerning when you may refile a bankruptcy case are as follows. Note that time runs from the date the case was filed, not the date of discharge.
Filing a Chapter 7 case after a Chapter 7 discharge. If you filed for Chapter 7 bankruptcy in the past and received a discharge, you may not file another Chapter 7 bankruptcy until eight years after your first case was filed.
Filing a Chapter 7 case after a Chapter 13 discharge. If you received a discharge in a Chapter 13 case, you cannot file a case under Chapter 7 until six years from the date the Chapter 13 was filed. There are exceptions if (1) you paid your unsecured creditors in full, or (2) you paid your unsecured creditors at least 70%, and your plan was in good faith and represented your “best efforts” to pay.
Filing a Chapter 13 after a Chapter 7 discharge. If you received a discharge in a Chapter 7 case, you cannot receive a discharge in a Chapter 13 case filed less than four years after the date that the Chapter 7 case was filed. You may still file under Chapter 13 during this four-year period, but you cannot receive a discharge of any debts remaining at the end of the case.
Quick Note: Filing a Chapter 13 Case immediately after a Chapter 7 discharge is sometimes called a “Chapter 20.” Even though a second discharge is not available, it can be useful for debtors with mortgage arrearages or large amounts of non-dischargeable debts (certain taxes, student loans, etc.). The purpose of Chapter 20 is to get rid of all dischargeable debts in Chapter 7, then pay the remaining non-dischargeable debts in Chapter 13.
Filing a Chapter 13 case after a Chapter 13 discharge. You cannot receive a discharge in a Chapter 13 case filed two years from the date the previous case was filed. As a practical matter, as most Chapter 13 cases are three to five years long, in most cases, you can file again immediately after the old Chapter 13 case is closed. Although you will not receive a discharge, there may be good reasons to file nonetheless.
Quick Note: If you did not receive a discharge in the Chapter 7 or Chapter 13 case (the case was dismissed), you can file again at any time. There are some exceptions, related mainly to bankruptcy fraud or bad faith filings.
For most people considering bankruptcy, their credit is severely damaged already. If that is the case, bankruptcy may not make much difference in your credit rating in the short-run. However, in the long-run, bankruptcy can be the first step to rebuliding a solid credit ratiing and better financial future.
A Chapter 7 bankruptcy remains on your credit for up to ten years, and Chapter 13 reamins for 7 years. The time runs from the date you file your bankruptcy case. However, that does not mean that you will not be able to reestablish your credit for ten years.
Because you discharged debts that you could no longer pay, you are in a better position to rebuild your credit than if you could not meet your payments. From a lender’s perspective, a customer with a lower debt load is more attractive than a customer who is maxed out and paying late. For that reason, many debtors have impoved their credit ratings enough to obtain a mortgage within two to three years of filing, if they have taken the steps necessary to reestablish their credit. Auto loans are usually available much sooner.
We make a point of providing our clients with the information they need to rebuld their credit after bankruptcy. For more on life after bankruptcy, see our post: Bankruptcy and Beyond. >>More
In the vast majority of cases, you are able to keep all of your unsecured personal property, unless you have something that is unusually valuable (like an original Rembrandt hidden in the attic). You can keep this property because the Bankruptcy Code allows you to “exempt” (up to a limit) the types of things most people own, such as household goods, clothes, jewelry, vehicles, retirement plans, etc.
For example, an individual can exempt up to $13,400 in household goods, such as furniture, appliances, TV’s, computers, stereos, etc. (That amount doubles to $26,800 for married couples.) The value of your personal property is determined by how much you could reasonably get if you sold the property. Few people would be able to sell their used household goods for anywhere close to these exemption amounts. In addition, exemptions can often be stacked to increase the amount of exempted property. For that reason, most people do not lose any of their personal property in Chapter 7.
Quick Note: In Pennsylvania, you have the option of taking either Pennsylvania State or federal exemptions. However, in most instances, the federal exemptions allow you to keep much more.
In most cases, the answer is yes. In Chapter 7 cases, it depends largely on how much equity you have in your home or vehicle. (Equity is the difference between what you owe on an item and what it is worth.) For the most part, if (1) the equity in your house or auto is not more than the exemption for that type of property, and (2) you are current on your payments, you can keep it. (If you are behind on your home or car payments, you may need to consider Chapter 13.)
Example 1: Bob and Mary are married and own a home in Montgomery County worth $140,000. They owe $100,000 on the mortgage loan. After subtracting the value of the home ($140,000) from the amount they owe ($100,000), they have $40,000 in equity in their house. The current federal exemption for equity in a home is $50,300 for a married couple ($25,150 for an individual). Because the amount of Bob and Mary’s equity ($40,000) is less than the exemption of $50,300, John and Mary can exempt all of the equity in their home. Thus, as long as Bob and Mary are current on the payments at the time of filing and continue to make payments during and after their bankruptcy, they can keep the home.
Example 2: Jane owns a car that is worth $12,000. She owes $10,000 on an auto loan, leaving her with $2,000 in equity in the car ($12,000 minus the $10,000 loan). There is an exemption of $4,000 for motor vehicles. Because her equity ($2,000) is less than the available exemption ($3,450), Jane’s equity in the vehicle is exempt. As long as Jane is current on her auto loan payment and continues to pay on time, she can keep the car. Some auto lenders require a “reaffirmation agreement,” which we will discuss elsewhere.
If you are behind on your house or car payments, Chapter 13 allows you to pay back the missed payments over time (typically 36 to 60 months). As long as you have sufficient income to make your current house or car payments as they come due and make the Chapter 13 plan payments, Chapter 13 can enable you to keep your property.
Example 1: Let’s say that John and Marie’s mortgage payment is $1,000 per month, and they are 8 months behind on their payments. How do they get caught up on the $8,000 in back payments? If John and Mary file for Chapter 13 bankruptcy, they can pay the arrearage over time through the Chapter 13 bankruptcy plan over 36 to 60 months. In the meantime, they will begin making their regular mortgage payment to the bank as if they were current. This will enable them to keep their house.
Example 2: Let’s say Bob owns a car that is worth $20,000, but he owes $17,000 on his auto loan. Bob is 5 months behind on his auto payments of $300 per month, leaving him with an arrearage of $1,500. If Bob files for Chapter 13, and begins making his regular car payment, he can pay back the $1,500 through the Chapter 13 plan.
Quick Note: In Chapter 13 cases in the Eastern District of Pennsylvania, you continue to make your house payments directly to the lender. However, your car payments may be made through the plan. You may even be able to reduce the balance, interest, and payment on your car loan or some other secured loans through a bankruptcy cramdown. >>More
Generally, yes IRS qualified retirement plan such as a 401k plans, pensions, Keogh plans, and IRAs are exempt property, as are Social Security benefits.
Yes, in many cases you can discharge your back federal, state, and local income taxes in bankruptcy. However, the taxes (1) must have come due three years or more before filing for bankruptcy, (2) you must have filed the returns two years or more before bankruptcy, and (3) the taxes must have been assessed within 240 days of the bankruptcy or not at all. For more details on taxes and bankruptcy, see our blog post “You Can Discharge Income Taxes In Bankruptcy.”
Simply put, a reaffirmation agreement is a new contract between you and a creditor whereby you confirm your liability to pay the debt. In bankruptcy, reaffirmation agreements are typically used to reaffirm a secured debt, such as a home or car loan. You should discuss with your attorney whether or not you should enter into a reaffirmation agreement with a creditor. Often, you can keep secured property without a reaffirmation agreement, as long as you make the payments on time.
Generally, you do not have to go to court during your bankruptcy. However, you must attend a “meeting of creditors” (“341 hearing”) conducted by the bankruptcy trustee in your case. The trustee is not a judge, and the meeting is relatively informal and brief. (It is not unusual for the meeting to last less than 15 minutes.) At that meeting, which your attorney will attend with you, the trustee will ask some questions regarding your bankruptcy petition, schedules, and other documents. Although creditors may attend the meeting and ask questions, it is unusual for them to do so in the typical bankruptcy case. Your attorney will prepare you for the meeting, so there is no need to be nervous about it. >>More
No. Even if your employer found out about your bankruptcy, federal law prohibits an employer from firing an employee for filing for bankruptcy. Although this law will not protect an employee who has other job issues, resolving financial issues often improves an employee’s performance. Think about it from an employer’s perspective: would you rather have an employee who was distracted by harassing creditors and financial problems, or an employee who has resolved these issues and can concentrate on the job?
Typically yes, if you otherwise qualify. Student loan providers are barred by federal law from discriminating against an applicant because of a bankruptcy.
No. It is against the law for a public utility to cut off or refuse to provide service because you filed for bankruptcy, even if you are seriously behind on your payments. The utility is permitted to charge a deposit. Typically, the utility will start a new account for you. If you are in danger of losing service on a necessary utility, you should let your attorney know right away.
Selling a home or other property during bankruptcy is possible. However, with some exceptions, you may not sell any real or personal property before your discharge without the permission of the trustee. If you wish to sell anything of value while your case is active, you should contact your attorney.
The short answer is anything. In addition to exempt property, you can keep whatever you obtain after filing for bankruptcy. That being said, if you receive a large amount of money or other property within 6 months of filing (e.g., an inheritance, proceeds from a life insurance policy, etc.), you may be required to pay it to the trustee for distribution to your creditors (to the extent that it is not exempt). Therefore, it is very important to tell your attorney if you are expecting such a distribution, so your attorney can review possible exemptions before you file.
Before you file for bankruptcy, you must take a “credit counseling course.” After filing, you must take a “Financial Management” or Debtor’s Education Course.” You can take each course online or over the phone in an hour or so. There are many approved providers, and your attorney can recommend some. The cost of the course is minimal.
There is no age limit on the protections offered by the bankruptcy code, and seniors are seeking relief under the Bankruptcy Code more and more. In some ways, it is easier for seniors to discharge debt under Chapter 7 than younger people, because their social security income does not count towards the bankruptcy means test. Bankruptcy can protect a senior’s assets, such as a home or pension. Bankruptcy is not always the best solution for seniors, but it is an option that seniors having debt problems should discuss with a bankruptcy attorney. We offer discounts for seniors. >>More
Members of the armed services can file for bankruptcy. There are specific bankruptcy protections for servicemembers under the National Guard and Reservists Relief Act and other legislation. For example, active duty Guard members and reservists are not required to take the means test. Moreover, the bankruptcy courts generally accommodate servicemembers who are deployed overseas by rescheduling hearings, allowing the servicemember to appear by affidavit, etc. >>More
In addition, there are protections under the Servicemembers Civil Relief Act (“SCRA”) that may make bankruptcy unnecessary for some servicemembers, such as the ability to prevent evictions, stay court hearings, terminate auto leases, reduce interest on some pre-service loans, etc. As a thank you for their service, we discount our fees for servicemembers and veterans. >>More
Yes. The Statue of Limitations on unsecured debt, such as unpaid credit card balances, is four years. This means that the creditor has four years to sue you, or the debt becomes essentially noncollectable. However, the Statute of Limitations is an affirmative defense, meaning that it is a defense that you must raise. For more on the Pennsylvania Statute of Limitations, see our posts on stopping vulture debt collectors and costly Statute of Limitations mistakes. >>More
No. There is no minimum amount of debt required to file for Chapter 7 or Chapter 13 bankruptcy. However, a responsible bankruptcy attorney would not put debtors into bankruptcy if the debt is so small that it would be better to handle it another way.
On the other hand, people often have significantly more debt than they think. After pulling credit reports for clients, we often discover debts that they did know existed or balances that were higher than they thought.
Yes. There are limits to how much debt you can have and file under chapter 13. The limits depend upon the kind of debt.
For secured debts, the Chapter 13 debt limit is $1,257,850 and includes mortgage loans, loans for vehicles and other personal property, taxes secured by liens, etc.
The Chapter 13 debt limit for unsecured debts is $419,275 per file. Unsecured debts include credit cards, personal loans, medical bills, taxes not secured by a lien, etc.
For a married couple filing jointly, these limits double. The limits are good through the end of 2021 and adjusted every three years.
If you exceed these debt limits, you may need to file under Chapter 11 or consider Chapter 7. However, don’t assume that you will not qualify if you believe you are over these limits. Often, there are exceptions to the debt limits, which is a good reason to speak to a qualified bankruptcy attorney.
Note that there is no debt limit to file for Chapter 7 or Chapter 11 bankruptcy.