One of the most common questions asked of Philadelphia Bankruptcy Attorneys is, "how much do I get to keep if I file for bankruptcy?" The answer, surprisingly, is very often "everything." While bankruptcy is a federal matter (like immigration cases or FCC violations) as opposed to a state issue (like a simple lawsuit before local Magisterial court), there is still a state element which creeps into a federal bankruptcy filing: exemptions. These are the items that are excluded from liquidation in a Chapter 7 bankruptcy (meaning you get to keep them).
Pennsylvania debtors get to elect between two codes: the state exemption laws (found primarily in Title 42 of the Pennsylvania Consolidated Statutes) and the federal exemption schema (codified in Title 11 of the United States Code section 522). By and large, the federal exemptions are more generous than the state exemptions and the vast majority of Pennsylvania bankruptcy debtors elect the federal exemptions. The greatest difference is the so-called "wildcard exemption" which can be applied to any asset. The Pennsylvania limit is just $300; the federal limit is $11,975 (for an individual; double for a married couple). Clearly, the latter is more lenient.
There are some other differences, as well. Because of this, and for many other reasons, it is wise to speak to a Philadelphia bankruptcy lawyer before electing to file a bankruptcy. While a Chapter 13 bankruptcy is always a voluntary undertaking, a Chapter 7 bankruptcy may be filed involuntarily against you (on your behalf, as it were), but, more importantly as it relates to the exemptions, if you file a Chapter 7 bankruptcy, you are not at liberty to dismiss it on your own whim (as you could, for instance, in a civil lawsuit). Specifically, once you file the Chapter 7, a "bankruptcy estate" is created which houses all of your property; this is effectively managed by the trustee and the trustee can oppose the dismissal of the bankruptcy case. Where you have assets in excess of the exemptions but failed to discover this prior to filing, you will find it likely that the trustee will, in fact, oppose your request to dismiss the case. This is because there are assets to be liquidated; and the trustee works partly for the creditors and partly for themselves (for they get to keep a portion of whatever is liquidated).
Pennsylvanians are fortunate that they may elect the federal exemptions. Citizens of many other states are bound to that state's exemption laws. While it is true that some states such as California and, specifically, Florida have been known as havens for the bankrupt, the laws are changing with respect to exemption limits. For instance, Florida's homestead exemption used to be unlimited, but a federal cap was put on all bankruptcies, thereby limiting the Florida protections (although the limit is still quite high).
Another thing to consider is that the exemptions that must be used by a debtor are linked to that debtor's residency over the previous two years (the 730-day rule). Essentially, if you have not lived in the same state for the last two years, the place where you spent the bulk of the period prior to the last two years becomes operative. The reason for this somewhat odd law is that Congress, in its passing of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, wanted to eliminate what is known as forum shopping, where a litigant or debtor "moves" to a state to take advantage of the laws. In a bankruptcy context, that would generally mean the exemptions.
