The following are answers some common questions about Pennsylvania bankruptcy and non-bankruptcy alternatives, such as debt negotiation and foreclosure defense. For more in-depth information follow the links below. If you need to discuss your financial situation with an experienced bankruptcy attorney, call 215-248-0989 for a free consultation. We work with clients throughout Philadelphia, Montgomery County, Delaware County, Chester County, and Bucks County in Pennsylvania.
What are the signs that I should consider bankruptcy or a bankruptcy alternative?
You may wish to review your financial situation with a bankruptcy attorney if you are experiencing any of the following:
- Falling behind on home or auto payments or paying on “the last day”
- Making minimum credit card payments
- Paying one card with another
- Purchasing necessities, such as food and medicine, with credit cards
- Having little or no savings
- The sudden termination of a credit card or credit line (or a jump in the interest rate)
- Lack of health insurance or other necessary insurance coverage
- Financial concerns are beginning to affect your health, work, and family relationships
A bankruptcy attorney should review all of your options with you, such as debt negotiation and mortgage foreclosure defense, 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.
What is bankruptcy?
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.
What is Chapter 7 bankruptcy?
If you qualify, Chapter 7 bankruptcy allows you to eliminate most or all of your debts. Most debt is dischargeable under Chapter 7, although there are a few exceptions. In the vast majority 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 to 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
What is Chapter 13 bankruptcy?
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
What is debt negotiation or debt settlement?
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
What is foreclosure defense?
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
What is a deed in lieu of foreclosure?
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.
If I file for bankruptcy, will creditors continue to harass me?
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.
What is the means test?
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.
Will the 2005 Bankruptcy law changes prevent me from filing for bankruptcy?
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.
How long does Chapter 7 take?
A typical Chapter 7 case take only four months from beginning to end. At the end of the process, you will receive a “discharge” that eliminates all of your debts, with the exception of the nondischargeable debts mentioned above (some taxes, student loans, etc.). <<More
How long does a Chapter 13 case last?
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. <<More
If I filed for bankruptcy before, may I file again?
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 nondischargeable 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 nondischargeable 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.
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.
How will bankruptcy affect my credit?
For most people considering bankruptcy, their credit is severely damaged already or soon will be. In those cases bankruptcy may not make much difference in your credit rating. Although a bankruptcy remains on your credit report for up to ten years, 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 individuals are able to obtain a mortgage within two to three years of filing, if they take the steps necessary to reestablish their credit. >>More
Can I keep my personal property if I file for bankruptcy?
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 $11,525 in household goods, such as furniture, appliances, TV’s, computers, stereos, etc. (That amount doubles 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, few people lose any 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.
Can I keep my house or car if I file for Chapter 7 bankruptcy?
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 $43,250 for a married couple ($21,625 for an individual). Because the amount of the equity in this scenario is less than the exemption of $43,250, 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 $2000 in equity in the car ($12,000 minus the $10,000 loan). There is an exemption of $3450 for motor vehicles. Because her equity ($2000) is less than the available exemption ($3450), her 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.
How can Chapter 13 help me if I am behind on my house or car payments?
If you can afford to make your current house payments and pay any accumulated back payments (the “arrearage”) over 36 to 60 months, you can keep your house. In Chapter 13 cases, most current secured debt, such as a car loan, can be paid through the plan or directly to the creditor. However, house payments are made directly to the lender. If you are behind on your house or car payments, Chapter 13 allows you to pay back the missed payments over time. As long as that you have sufficient income to make the 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: Take Bob and Mary from our example above. Let’s say that John and Marie’s mortgage payment is $1000 per month, and they are 8 months behind on their payments. How do they get caught up on the $8000 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, typically 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 $1500. If Bob files for Chapter 13, and begins making his regular car payment, he can pay back the $1500 through the Chapter 13 plan.
Quick Note: In Chapter 13 case 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.
Can I keep my retirement plan if I file for bankruptcy?
Generally, yes IRS qualified retirement plan such as a 401k plans, pensions, Keogh plans, and IRAs are exempt property, as are Social Security benefits.
Can you discharge your back income taxes in bankruptcy?
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.”
What is a reaffirmation agreement?
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.
Will I have to go to court?
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
Can I be fired for filing for bankruptcy?
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?
Can I obtain student loans after I file for bankruptcy?
Typically yes, if you otherwise qualify. Student loan providers are barred by federal law from discriminating against an applicant because of a bankruptcy.
Will my utilities be cut off because I filed for 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.
Can I sell my home or personal property during a Chapter 7 bankruptcy?
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.
What can I own after Bankruptcy?
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.
How do I take the courses required before I 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.
May senior citizens file for bankruptcy?
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 means test (see above). 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
If I am in the military, can I declare bankruptcy?
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
Is there a Statute of Limitations on Debt in Pennsylvania?
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