How Does Pennsylvania’s Homestead Exemption Affect Your Bankruptcy?

One of the scariest parts about filing for bankruptcy is not knowing what will happen to valuable assets like your house. While many states have legal exemptions that protect a person’s home during bankruptcy, Pennsylvania does not.

A homestead exception allows people to shield a certain amount of equity in their home from the bankruptcy process. For many, this is the difference between keeping their house or losing it to bankruptcy. While Pennsylvania does not offer such an exemption, there is a federal homestead exemption you might claim. Pennsylvania is one of a few states that allows people to choose between state and federal exemptions, meaning you can claim the federal homestead exemption since Pennsylvania does not offer one at the state level. Homestead exemptions might be greater if you are filing jointly with your spouse. If you do not claim any homestead exemption, your home might be vulnerable to liquidation by the bankruptcy trustee for your case.

For help protecting your home, call our Pennsylvania bankruptcy lawyers at (215) 701-6519 and set up a free assessment of your finances and claims with us at Young, Marr, Mallis & Associates.

What is Pennsylvania’s Homestead Exemption for Bankruptcy?

Bankruptcy exemptions vary across states. Different states might have different exemptions you can take advantage of, and the monetary limits of these exemptions may also vary. While many states offer homestead exemptions to help protect your house, Pennsylvania is not one of them.

While there is no homestead exemption in Pennsylvania, you might still be able to protect your house when you file for bankruptcy. Numerous states might have state homestead exemptions, but so does the federal government. In many states, you are required to claim only state exemptions, even if federal ones might be more generous. Pennsylvania does not follow this rule. Instead, it allows residents to choose either state or federal bankruptcy exemptions. Since there is a federal homestead exemption, you can claim it if you file for bankruptcy in Pennsylvania.

Under 11 U.S.C. § 522(d)(1), you may claim up to $27,900 in your home’s equity under the federal homestead exemption. This limit might be higher if you file for bankruptcy jointly with your spouse. You must also be living in the home to claim this exemption. A landlord could not claim the federal homestead exemption to protect a rental property.

How Homestead Exemptions Work in Pennsylvania Bankruptcy Cases

You can claim the federal homestead exemption when you initially file for bankruptcy. The process can be as simple as naming the exemption and the property you wish to protect in your paperwork when you and your attorney submit your bankruptcy paperwork to the court. If you mistakenly leave this information, your attorney can help you contact the court to correct the information. If caught early, the mistake might be easily fixed.

While Pennsylvania allows bankruptcy filers to choose their exemptions, you cannot pick exemptions from both state and federal levels. For example, you may not claim federal homestead exemptions while also claiming state exemptions related to retirement accounts. You must pick entirely federal or state exemptions. This means that if you wish to claim the federal homestead exemption, you cannot claim any state exemptions, no matter how helpful they might be.

Before submitting anything to the court, you should call our Philadelphia bankruptcy lawyers. We can review your finances and help you figure out which exemptions are best for your case. You might benefit from federal or state exemptions depending on your assets and your home’s equity.

Deciding Between Pennsylvania and Federal Bankruptcy Exemptions

As mentioned before, you cannot cherry-pick from both state and federal bankruptcy exemptions. You must select all federal or all state exemptions. As such, you have a big decision to make, and you should talk to your lawyer before making any final choices. Which category is the best choice depends on the assets you want to protect.

Considering that Pennsylvania has neither a homestead exemption nor a vehicle exemption, many bankruptcy petitioners elect federal exemptions, allowing for both home and vehicle protections. However, those who do not own homes or vehicles might choose differently.

Perhaps you are a renter who uses public transportation. In that case, you would not need to claim the federal homestead or vehicle exemptions. At that point, reviewing the available state exemptions would be wise, as they might help in ways federal exemptions do not. On the other hand, you and your attorney might decide that federal exemptions other than the homestead exemption are in your better interest.

What Happens If I Do Not Claim Homestead Exemptions in a Pennsylvania Bankruptcy Case?

Bankruptcy exemptions are available, but you must actively claim them. They do not kick in automatically. Normally, claiming exemptions involves listing them in your petition when you file with the courts. If you leave out the exemptions by mistake, the bankruptcy trustee may seize the unprotected assets and sell them to pay back your creditors.

If you did not claim the homestead exemption because of a mistake on forms – specifically, Schedule C forms – the bankruptcy trustee might allow you to correct the mistake before moving forward. However, the trustee might assume you did not intend to claim any exemptions and process your case. At that point, it might be hard to fix the error.

Corrections might be made informally. If the trustee notices you did not claim the homestead exemption, and you have a valuable home, they might double check with you or your lawyer before finalizing anything. If you believe you might have filled out the incorrect information, call your lawyer immediately so they can get in touch with the bankruptcy trustee.

Call Our Pennsylvania Bankruptcy Lawyers for Help Now

To determine what exemptions are best for you, call our Bensalem, PA bankruptcy lawyers at (215) 701-6519 and schedule a free assessment of your case with us at Young, Marr, Mallis & Associates.