Most debtors keep all their property when they file for bankruptcy relief, even under a Chapter 7 case.
Are you wondering if Chapter 13 bankruptcy in Pennsylvania is the best way to get rid of your debt problems? Would filing bankruptcy help or hurt your financial situation? If you have questions about filing Chapter 13 bankruptcy in Pennsylvania, we have answers.
Firstly, filing Chapter 13 is a big decision. You are committing to a bankruptcy repayment plan that could last for up to five years. This is why understanding the bankruptcy differences and understand your Chapter 13 plan payment is crucial to making the most informed decision. Let’s get started.
Chapter 13 vs. Chapter 7 Bankruptcy in Pennsylvania
You may know that Chapter 7 bankruptcy in Pennsylvania filed in Pennsylvania are mostly no-asset Chapter 7 cases. A no-asset Chapter 7 case means that you keep all your property while getting rid of most, or even all, of your debts. However, you must meet strict income requirements to qualify for debt forgiveness under Chapter 7. Furthermore, if your income exceeds Pennsylvania’s median income level, you may need to file under Chapter 13. The good news is that there are several benefits of filing Chapter 13 in Pennsylvania.
For example, Pennsylvania Chapter 13 bankruptcy allows debtors (the individuals who file for bankruptcy relief) to reorganize their debts. Instead of face collection efforts, repossessions, foreclosures, wage garnishments, and debt collection lawsuits, debtors can pay an affordable Chapter 13 payment to protect their property and get out of debt.
Chapter 13 Plan Payments in Pennsylvania
To start, each Chapter 13 plan payment is based on the debtor’s unique financial situation. Therefore, you cannot base your bankruptcy payment on another person’s case. When calculating your Chapter 13 plan, you must consider several factors.
Factors that can impact a Chapter 13 plan payment include, but are not limited to:
- Debts — The type and amounts of the debts you owe impact your Chapter 13 plan. Some debts, such as most tax debts and past due domestic support payments, must be paid in full through your Chapter 13 plan. If you are behind on your house payments and want to keep your house, the past due mortgage payments must be paid in full. Other debts may only receive a percentage of the amount owed to the creditor.
- Income & Expenses — Your income and expenses are used to calculate disposable income. Disposable income is what you have each month after allowable expenses you can use to pay your debts. Higher disposable income levels could result in higher percentages paid toward unsecured debts.
- Non–Exempt Equity in Assets — Bankruptcy laws allow you to keep a portion of your property when you file for bankruptcy relief. Chapter 13 debtors can keep all their property, but they may need to pay a higher Chapter 13 bankruptcy plan payment if their property is worth substantially more than the allowable bankruptcy exemptions (see below for a detailed discussion of Pennsylvania bankruptcy exemptions).
Additionally, there could be other factors that might impact your Chapter 13 payment.
Understand the Chapter 13 Payment Process
During the Chapter 13 process, most debtors pay a small percentage of what they owe to unsecured creditors. Debts that are eligible for a bankruptcy discharge are forgiven when the debtor completes the Chapter 13 plan. Also, debtors can catch up on past due mortgage payments and pay tax debt over three to five years.
Most debtors in Chapter 13 keep their homes, cars, and all other property while getting rid of thousands of dollars in unsecured debts. Furthermore, unsecured debts include credit card debts, medical debts, most personal loans and judgments, old utility bills, and old rent payments. Through your Chapter 13 plan, you can get out of debt, protect your property, and put yourself on the road to a strong financial future.
Means Testing in Pennsylvania
Now, an important part of filing a Chapter 13 bankruptcy in Pennsylvania is the Means Test which Congress reformed the Bankruptcy Code in 2005. The Pennsylvania bankruptcy means test is designed to calculate and compare your average income to determine what chapter of bankruptcy you might qualify to file. The Means Test also impacts a Chapter 13 repayment plan.
Calculating Average Monthly Income (AMI)
Average monthly income (AMI) is used to calculate your median annual income. Your median annual income is used to determine if you qualify for a discharge under Chapter 7.
If your median income is above the median income for a household of the same size in Pennsylvania, you may not qualify to file under Chapter 7. Also, if your median income is above the Pennsylvania medial income, you must commit to a 60-month Chapter 13 plan.
Average monthly income is based on all income received during the six months before filing a Chapter 13 petition. Furthermore, you add all your income for the past six months and divide by six. AMI is based on household income. Therefore, even if your spouse is not filing Chapter 13, you must include his or her income when calculating AMI.
To calculate median income, you multiple your AMI by 12 and compare that figure to the current median income figures for Pennsylvania. Median income amounts are revised every few months. You can view the current median income figures for Pennsylvania by clicking here or viewing the table below. Please note that the latest figures are for cases filed on or after May 15, 2022.
Calculating Disposable Income for a Chapter 13 Plan
The Means Test also determines your disposable income. As stated above, disposable income is the amount of money you can use each month to pay toward your debts. It is calculated by subtracting living expenses from your average monthly income.
However, some living expenses may be limited, and some expenses may not be permitted. Furthermore, the United States Trustee’s Office has a list of the living expenses and other deductions for the Means Test on its website. If you have living expenses that fall within special circumstances, you might be able to have those expenses approved by petitioning the court.
For example, in a Chapter 13 case, your disposable income impacts your bankruptcy plan payment. In most cases, debtors must use disposable income to repay creditors through their Chapter 13 plan. Therefore, maximizing allowable deductions and expenses can help lower your Chapter 13 payment.
Please note that the cost to file bankruptcy in Pennsylvania is $313 for a Chapter 13 bankruptcy and $338 for a Chapter 7 bankruptcy.
Bankruptcy Credit Counseling and Debtor Education Courses
Before you file your Chapter 13 bankruptcy petition, you need to complete the first of two bankruptcy courses. In addition, the certificate of completion for the Credit Counseling Course should be filed with your bankruptcy petition. The Debtor Education Course cannot be completed until after you file your bankruptcy case and receive a bankruptcy case number.
Both bankruptcy courses are available online for a small fee. However, the UST must approve the company providing the bankruptcy courses. It takes about two hours to complete each course.
The UST maintains lists on its website of companies approved to provide the Pennsylvania Credit Counseling Course and the Pennsylvania Debtor Education Course. Make sure you use the most recent list to choose a company for your bankruptcy course.
Pennsylvania Bankruptcy Exemptions
Many people fear filing bankruptcy in Pennsylvania because they assume they lose most of their property in bankruptcy. In reality, most debtors keep all their property when they file for bankruptcy relief, even under a Chapter 7 case.
Bankruptcy exemptions in the Bankruptcy Code protect certain items when a person files a bankruptcy case. The exemptions protect a specific amount of equity in certain pieces of property. In a Chapter 13 case, protecting equity in property helps to keep your plan payment lower.
NCLC has a list of the current federal bankruptcy exemptions on its website. The exemption amounts are subject to revision periodically.
Federal Bankruptcy Exemptions
The Bankruptcy Code allows states to opt out or write their state-specific bankruptcy exemptions. Pennsylvania has enacted a set of state-specific bankruptcy exemptions. However, it is one of the few states that allow debtors to choose between federal bankruptcy exemptions and Pennsylvania bankruptcy exemptions.
You must have resided in Pennsylvania for at least 730 days before filing bankruptcy to use Pennsylvania bankruptcy exemptions. If you have not resided in Pennsylvania for at least 730 days, you use the state laws for bankruptcy exemptions of your state of residence during the greater portion of the 180 days before the 730-day residency requirement.
Pennsylvania vs. Federal Bankruptcy Exemptions
Many of the bankruptcy exemptions for Pennsylvania are in Title 42 Chapter 71 of the Pennsylvania Statutes. The most commonly used Pennsylvania bankruptcy exemptions include exemptions for clothing, wages, pensions, retirement funds, personal property, insurance, and public benefits.
Can you keep your home and file bankruptcy in Pennsylvania?
You can often keep your house when filing bankruptcy by using exemptions, but please note that Pennsylvania is one of the few states that do not have a homestead exemption. Homestead exemptions protect the equity in your home.
Therefore, many debtors choose to utilize federal bankruptcy exemptions if they have equity in their homes. Because Pennsylvania bankruptcy exemptions can be difficult to understand, it can be wise to talk to a bankruptcy attorney before filing Chapter 13 in Pennsylvania.
Bankruptcy Courts and Trustees for Pennsylvania
Pennsylvania has three bankruptcy districts. Your residence determines which district handles your Chapter 13 case. Chapter 13 trustees are assigned based on districts. The United States Trustee’s Office oversees Chapter 13 trustees throughout the country. You can view a list of Pennsylvania Chapter 13 trustees on the UST’s website.
Bankruptcy Districts in Pennsylvania
1. Eastern District of Pennsylvania
The Eastern District of Pennsylvania has two divisions – Philadelphia and Reading. The Philadelphia division serves Philadelphia, Bucks, Chester, Delaware, and Montgomery counties. The Reading Division serves Lancaster, Berts, Northampton, and Lehigh counties.
2. Western District of Pennsylvania
The Western District of Pennsylvania has three divisions – Erie, Pittsburgh, and Johnstown. Cases are assigned to a district based on the debtor’s residence.
3. Middle District of Pennsylvania
The Middle District of Pennsylvania has three divisions located in Wilkes-Barre, Williamsport, and Harrisburg. Each division serves numerous counties within that division. Cases are automatically assigned to a divisional office based on the debtor’s zip code.
Each bankruptcy district in Pennsylvania has court information, resources, local bankruptcy rules, local bankruptcy forms, and other information available on their websites.
Alternatives to Filing Chapter 13 Bankruptcy in Pennsylvania
Before you decide to file Chapter 13, it may be beneficial to explore bankruptcy alternatives for resolving debt problems. There could be one or more options that give you the same debt relief without the necessity of filing Chapter 13 bankruptcy in Pennsylvania.
For example, you might want to consider debt settlement or debt consolidation as alternatives to bankruptcy.
Should I Pursue A Chapter 13 Bankruptcy Case in Pennsylvania?
We understand that it can be difficult to know which debt relief option is right for you. We encourage you to continue to research the bankruptcy option and alternatives to help you make the most informed decision. You can also speak with a bankruptcy attorney who can help you understand the costs and pros and cons of bankruptcy.