Frequently Asked Questions About Filing Bankruptcy in Pennsylvania
Will I be able to keep my property?
Will I have to pay some or all of my creditors?
Do I really need an attorney?
What is the Median Test and the Means Test?
If I pass the Median and Means Tests, can I definitely file a Chapter 7?
Should I liquidate my IRA or 401(k)to pay my debts if I think it will prevent me from filing bankruptcy?
What is the Automatic Stay and how long does it last?
Can I discharge taxes or student loans?
Does my spouse have to file bankruptcy with me?
If I am being sued and I know I will eventually file bankruptcy, does it matter if I have a judgment against me?
What is a Sheriff Levy and Sheriff Sale?
My house is in foreclosure and I am trying to save it! What should I do first?
What is a 341 Meeting of the Creditors and where is it held?
Can my wages be attached or garnished?
How often can I file bankruptcy?
Can I keep my house AND get rid of a Second Mortgage?
Will I be able to keep my property?
In many cases, you will be able to keep all of your personal property, your car and your house. Pennsylvania uses the Federal Bankruptcy Exemption amounts. Each debtor is permitted to keep approximately $9,500 in household goods (based on the resale value; not the purchase price), $3,500 equity in one vehicle, $10,000 equity in their home, and $10,000 for any other property (called a wildcard). There are additional exemptions for jewelry, tools of the trade, life insurance proceeds and personal injury awards. In addition, some property is completely excluded from the bankruptcy estate, such as 401(k)s and IRAs and similar pension or retirement accounts. If spouses file together, the exemptions are doubled.
Will I have to pay some or all of my creditors?
Most people will be able to discharge all unsecured debts in their bankruptcy and may even be able to modify or discharge secured debts. Some kinds of debts are generally not dischargeable except under exceptional circumstances, such as taxes, student loans, employee wages, and trust fund taxes (payroll taxes).
It is also possible under the guidelines set out in the new bankruptcy law that you may be required to make some payments to your creditors. However, these payments are often substantially less than the payments you are currently trying to make, or unable to make. If you are required to make payments, it means that you do not qualify for a Chapter 7 bankruptcy, but instead have filed a Chapter 13. The payments are made monthly, to the Bankruptcy trustee, for a period of three to five years, and except for secured debts, the payments do not include interest. As a result if your payment is so high that you are in what is called a "100% plan", you will actually pay off all of the debt at the end of your bankruptcy. If were not in bankruptcy and were paying the same amount of money to your creditors that your plan called for, you would most likely not pay off all of your debt because of late fees and interest. As a result, sometimes bankruptcy is still the best option even if the plan payment is high. However, you should come and see us first to determine what your plan payment would be, if anything, before making the decision to file bankruptcy. We ALWAYS discuss non-bankruptcy options with our clients.
Do I really need an attorney?
Yes. We are not just saying this because we are attorneys. An experienced attorney is able to help you determine what kind of bankruptcy is appropriate and to draft your petition and schedules correctly, so as to protect your right to a discharge. Unlike some other areas of the law, amending or "fixing" an incorrect bankruptcy petition is not always easy - and not always allowed. If you do it wrong, you may not be given the chance to correct the error and your discharge may be put in jeopardy or your petition may be dismissed.
Also, the 2005 bankruptcy law is still quite new and trustees and debtors are continually challenging various aspects of the law. You cannot rely on information on the Internet - not even on this website - as being the most current - because the law can change quickly. A consultation with an attorney is the best way to understand the most up to date law.
Even the Administrative Office of the U.S. Courts recommends that people who are considering bankruptcy hire an experienced bankruptcy attorney:
You can also learn about recent court decisions on York Bankruptcy Law's Blog, which is updated frequently."It is very important that a bankruptcy case be filed and handled correctly. The rules are very technical, and a misstep may affect a debtor's rights. For example, a debtor whose case is dismissed for failure to file a required document, such as a credit counseling certificate, may lose the right to file another case or lose protections in a later case, including the benefit of the automatic stay. Bankruptcy has long-term financial and legal consequences — hiring a competent attorney is strongly recommended."
Should I liquidate my 401(k) or IRA if I think it will prevent me from filing bankruptcy?
Be careful here. First, in bankruptcy, a 401(k) and IRA and other qualified retirement accounts are completely exempt. What this means is that the bankruptcy Court cannot touch that property. Once you convert it to cash, if you still have some of that cash in your account at the time you file bankruptcy, you will be limited to the amount of cash a debtor is permitted to have in bankruptcy.More importantly however is that you be honest with yourself about whether or not liquidating those funds will really make a difference and prevent a bankruptcy. This is because if those funds offer just temporary relief, you could be causing problems for yourself in the future. Obviously you will have to pay taxes on those funds. Depending on what your income was for the year (perhaps earlier in the year your income was better) you might have difficulty coming up with the taxes owed because the tax amount will be based on your income tax bracket for the entire year - not just what it was at the time you took out the funds. Of course, you can very often work out a payment plan with the IRS.
However, liquidating your IRA, 401(k) or other pensions will almost always cause a problem for you in bankruptcy. The money you receive (the gross amount - meaning even the penalty and taxes which you never actually received) may count as income when calculating your income for both the Median Income Test and the Means Test. And because those tests are based on the income you have made for the six months right before you file, and doubled, those funds could very well make the difference between qualifying for a Chapter 7 or Chapter 13. Often you will be required to wait - sometimes for as long as six months - to file bankruptcy - to wait for that income to average out of your six month income average. If you are facing a lawsuit or foreclosure, this could be devastating. You could end up with the choice of having to file bankruptcy with an artificially high income to preserve your home or stop garnishment of a checking or savings account or not filing and risk losing that property. If you are thinking about liquidating one of these accounts, talk to an experienced bankruptcy attorney first. Know your rights and the possible consequences, so that your decision will be informed.
What is the Median Test and the Means Test?
Under the new bankruptcy law, a debtor's income must be below a certain threshold in order to initially qualify for a Chapter 7. The income level is determined using data from the IRS and the Census Bureau. This initial "test" is called the Median Income Test. If a debtor's gross annual income is under this amount, the debtor passes the Median Income Test and is on the way to qualifying for a Chapter 7. Also, if a debtor passes the Median Income Test, the debtor does not have to take the "Means Test."
The Means Test is much more complicated. It is a test that requires the debtor to compare his or her expenses with the average expenses for the area in which the debtor lives. For example, debtors in York County, Pennsylvania are held to the average expenses that the IRS and the Census Bureau have determined are the average for York County, Pennsylvania. Let us help you in determining whether or not you can pass the Median and Means Tests.
The Means Test does not use your projected income, but instead uses the income you have made for the last six months and then doubles it. As a result, sometimes it is better to wait to file bankruptcy to let a three paycheck month pass outside the six month window, or in the case of people who work on commission, allow a higher than average commission payment to pass outside the six month window. We can advise you as to whether or not you should wait. Be careful before liquidating IRAs, 401(k)s and other retirement accounts. See the question above regarding the risks associated with doing so.
NOTE: If you fail the Median income test and also fail the Means Test (meaning you have to file a Chapter 13 and make payments to the Court), your payments will be for five years, not three years.
If I pass the Median and Means Tests, can I definitely file a Chapter 7?
Not necessarily. Below are the three most common reasons why you may still have to file a Chapter 13 even if you pass both the Median and Means Tests:
1. The debtor's actual income (not the Means Test income) is higher than the debtor's reasonable expenses. These are your actual expenses, not the expenses that are the average for your region, as used in the Means Test. Depending on how high this number is, the monthly income that is over and above the debtor's monthly expenses must be paid into the Court every month for three years. An experienced bankruptcy attorney can assist you in determining what your actual and reasonable expenses are.
Even though your payments are required to be for three years, you can take the amount you would have to pay over those three years and spread it out for five years.
2. The debtor has property that is valued higher than the allowed exemptions. In this case, the debtor can take up 3 to 5 years to pay the trustee the value of that property, if the debtor wishes to keep it.
3. The debtor is behind in the payments as a mortgage or car loan for a house or a car. The debtor will be given up to 5 years to pay the past due balance, provided that the debtor can also make the current payments as well. This works well for a debtor who fell behind in payments due to an extended illness or loss of a job, but who now is working to his or her full capacity and just needs to be able to catch up on past bills.
Regardless of the reason a person files a Chapter 13, all unsecured debts (credit cards etc...) that would have been discharged in a Chapter 7 are still discharged in a Chapter 13. Any payments in the plan that are paid to those creditors does not change the fact that the balances still owed to them when the Chapter 13 is over will be discharged. NOTE: If your house is in foreclosure, you should generally file bankruptcy BEFORE the house is sold at the Sheriff Sale. Please see us for more information.
What is the Automatic Stay and how long does it last?
The Automatic Stay prevents your creditors from contacting you or attempting to collect a debt during the automatic stay. The automatic stay lasts the entire time that your bankruptcy is pending (anywhere from 6 months to 5 years, if you have filed a Chapter 13). However, creditors can sometimes petition the court to lift the automatic stay. For example, if your house is in foreclosure and you have no intention of keeping your house, but wish only to discharge the debt and eventually move out, your bank may request permission to move forward with the foreclosure because you are intending to leave the house anyway.
In a Chapter 13, if you do not maintain your payments for secured debts, such as making your payments to catch up with your past due balance on your mortgage, the bank can request to move forward with the foreclosure by asking to have the automatic stay lifted. However, the automatic stay cannot be lifted without giving you notice and an opportunity to object. Also, in a Chapter 13, if your spouse did not file bankruptcy with you, but is a co-signer on any debts, he or she is also entitled to the Automatic Stay. This way, if you have, for example, filed Chapter 13 to catch up on your mortgage, but only you filed for bankruptcy, the mortgage company cannot harass your spouse while you are in a 13.
Can I discharge taxes or student loans?
Only in very rare circumstances can taxes and student loans can be discharged. Contact us to learn more about whether or not you qualify for this extraordinary relief.
Does my spouse have to file bankruptcy with me?
No. And your filing bankruptcy does not affect your spouse's credit. However, if your spouse co-signed a loan with you, and you stop making the payments on that loan, your spouse must make the payments or his or her credit will be affected negatively. See information under the Automatic Stay for more information on how filing bankruptcy affects your spouse or co-signor.
If I am being sued and I know I will eventually file bankruptcy, does it matter if I have a judgment against me?
YES! If you own a home and you want to keep that home (instead of giving it back to the bank as part of your bankruptcy), you should file bankruptcy before any judgments are entered against you. In Pennsylvania, judgments entered against you in the county where your real estate is located will attach to that real estate as soon as the judgment is entered. And judgments against you in other counties just need to be filed in your county and they will attach too. Even if you later file bankruptcy, when you sell the house, the judgment must be paid in order for you to pass good title to the new owner. The creditor can no longer seek the money from you, but it is still attached to your home and therefore must be paid at the time of closing. Sometimes in bankruptcy we can get rid of judgments like this, but it depends on how much equity you have in your house. If you are being sued by any creditor and you want to keep your house and you think there is any possibility that you have any equity in your house, you should contact us immediately.
Property that is held by husband and wife as tenancy by the entireties may be protected if the judgment is against only one spouse. However, if you are contemplating divorce, and there are judgments against only one spouse, it is very important that the divorce not be finalized until you have spoken with a bankruptcy attorney. Once the divorce is entered, and the property is no longer held by spouses, the tenancy by the entireties is broken. Judgments against only one spouse can now attach to the property and must be paid off before the house can be sold, even if the underlying debt is later discharged in bankruptcy, unless we are able to remove the judgment as stated in the paragraph above.
It is possible in a bankruptcy to have a lien "avoided" so that it no longer attaches to your house. However, lien avoidance is not always possible and depends on how you hold title to the house, how much equity you have in the house, the kind of judgment, and what other assets you have. As a result, it is important to speak with a bankruptcy attorney prior to a judgment being entered against you.
What is a Sheriff Levy and Sheriff Sale?
A Sheriff Levy is the next step a creditor may take after obtaining a judgment against you. A judgment from a creditor that is not a mortgage company, such as from a credit card, can result in a sheriff levy and sheriff sale of your personal property (i.e. household goods). In such a sale ,the County Sheriff will come to your house to do the "levy." The levy is a list of all the property in your house. You do NOT have to allow the Sheriff in your house unless they have a "break and enter" order. The sheriff deputies that come out to your house know this. In York County the sheriff deputies are respectful and very professional. Generally this encounter, while stressful for you, will not be confrontational and the deputies will not attempt to embarrass you.
If the sheriff deputies have a "break and enter" order, you MUST let them in or they could technically force their way into your house. Usually the Sheriff comes out to your house first without the break and entry order and you can turn them away, but they will be back in a few days with the break and entry order in most cases. However, even with the break and entry order for the levy, the levy is not the actual sale.
The levy tells you that in no less than SIX (6) days, the Sheriff will hold a sale and sell all of your personal property to satisfy the debt. In York County the sale is generally no sooner than 30 days, but that is not always the case. There is no minimum bid or "reserve" and your neighbors can come and buy your property for a fraction of what it is worth. You can also buy your property back, if you are the highest bidder.
If the Sheriff has levied your property, or attempted to levy your property and you turned them away, you should contact us immediately!
A sheriff sale can also be used to sell your home once a foreclosure judgment has been entered against you. A foreclosure in Pennsylvania generally takes anywhere from 4-6 months to complete. Also, even after the sale takes place, you don't have to leave the house until an action in ejectment is filed against you and a default judgment in that case is entered. However, it is generally not wise to wait that long; you should start making arrangements to move out of the house before the sheriff sale. NOTE: Please see the answer to the next question about whether or not you should file bankruptcy BEFORE your house is sold at a Sheriff Sale.
A bankruptcy can stop a sheriff sale of either your house or your personal belongings.
My house is in foreclosure and I am trying to save it! What should I do first?
If your house is in foreclosure, you should not wait to contact us. If a sheriff sale date has been set, you should take your debtor counseling session now, so that you can file for bankruptcy quickly. A bankruptcy petition can be filed 7 days a week, 24 hours a day, but you must first complete your counseling. A sheriff sale can be halted up to one hour before the sale by filing bankruptcy -but remember that you must have a counseling certificate to file bankruptcy. NOTE: If you think or are not sure about whether you will be filing a Chapter 13 bankruptcy, you should file bankruptcy BEFORE your house is sold at a Sheriff Sale. This could make a huge difference in the amount of money you pay back in your Chapter 13 plan, depending on the amount of debt you have and your income.
Before filing bankruptcy you may want to consider a loan modification. You should contact your lender to see if you qualify for a loan modification program, such as the Saving Our Home Program recently enacted by the Obama Administration. However, if you are in foreclosure, you should be careful about protecting yourself while negotiating with the bank, to make sure a judgment is not entered against you.
You can modify your loan, and still file bankruptcy to discharge other debts, such as credit cards. However, keep in mind that most lenders will not negotiate a loan modification while you are in bankruptcy so it is best to attempt the modification prior to filing. Sometimes lawsuits and other issues make it hard to accomplish this. We can help you determine the best way to proceed.
We can assist you with negotiating a loan modification with your lender and our fees are more reasonable than many of the "modification" companies that have been preying on consumers. If you are interested in learning more about loan modifications, please contact us.
What is a 341 Meeting of the Creditors and where is it held?
The 341 Meeting of the Creditors is not really a meeting and generally no creditors appear. The meeting of the creditors is an informal hearing before the local Trustee, who has been appointed by the Bankruptcy Court to examine your petition and ask you questions about the information you provided in it. If your petition was not prepared properly, or if there is any question as to the accuracy of the information you provided, the local Trustee or the United States Trustee can object to your discharge. It is for this reason that it is important to have a qualified bankruptcy attorney assist you in preparing your petition. Contact Dawn Cutaia and allow her to help you prepare your petition the right way.
Can my wages be attached or garnished?
It is difficult for creditors to attach your wages in Pennsylvania IF your employer's headquarters are in Pennsylvania. If your employer is in Maryland, for example, Maryland may permit wage attachment and therefore your wages could in fact be garnished. There are only a few limited circumstances where a creditor can attach your wages if you are paid by a Pennsylvania employer. The most common reasons are because you owe back child support, or you owe taxes to the IRS. There is also a limited right for landlords to attach your wages for past due rent. However, other than these limited circumstances, there is no wage attachment in Pennsylvania In addition to child support, in divorce litigation, orders for alimony, alimony pendente lite, and spousal support are also subject to wage attachment. However, even these permitted forms of wage attachment have some limitations. Generally only up to 55% of your wages can be attached. Not even the IRS can take your entire paycheck.
In addition, the only way to have your wages attached is if a judgment is entered against you. So if your creditors are calling you and telling you they are going to attach your wages, if they have not even sued you yet, it can't happen. But again, in Pennsylvania, other than the above limited exceptions, there is no wage attachment.
However, your bank accounts CAN be garnished and if you have a bank account with a bank that you also have a an overdue credit card or mortgage, chances are very high that the bank will remove your funds. Filing bankruptcy will prevent this from happening, and depending your exemptions, you may be able to recover the funds that were taken once you file bankruptcy.
I owe federal taxes and IRS has sent me a notice to levy. Can bankruptcy help me?
Yes. Even though taxes are often not dischargeable, you can file a Chapter 13 bankruptcy and make the payments over time and receive the protection of the automatic stay, which stops even the IRS.
How often can I file bankruptcy?
The new law changed the timeliness for filing bankruptcy. A Chapter 7 can be filed every 8 years, and a Chapter 13 can be filed every 2 years.
Can I keep my home AND get rid of my second mortgage?
Sometimes. In a chapter 13, if your house is worth less than the balance due on your FIRST mortgage, you may be able to "strip" your second mortgage and get rid of the lien and your personal responsibility for the note. However, this is obviously a complicated issue that should be discussed with a bankruptcy attorney.
Download the Official Bankruptcy Information Sheet.