Businesses and individuals alike envision a Chapter 7 bankruptcy as Armageddon. The trustee commands an army of creditors to invade your property seeking assets for resale to recoup their losses. Fortunately, the Bankruptcy Code contains provisions that protect some of the debtor’s property from the financial raid and give them a fresh start: a means test and a set of both federal and state exemptions.
Means test establishes eligibility
Pennsylvania law requires that debtors who seek to file Chapter 7 pass a financial means test. Applicable only to high-income filers, i.e., those above the median for a specific household size in the state. The means test separates those for whom debt classified as unsecured follows the process established under Chapter 13. Exemptions apply to debt comprised primarily of consumer goods as well as for debt incurred while on active duty. The current value range for the means test lies between $7,475 and $12,475 over a period of five years.
Pennsylvania residents have two options for exemptions
A separate provision of the Code enumerates specific property exempt from creditors’ hands. States such as Pennsylvania permit debtors to use either the federal exemptions or those designated by law. The most significant exemptions within the Commonwealth include various amounts on life insurance proceeds, pensions, unemployment compensation, other public benefits and the homestead. Debtors may not select benefits cafeteria style, but rather use either the state or federal list.
Debtors who consider filing bankruptcy under Chapter 7 need not fear confronting the battle before them. Provisions at the state and local level provide options to help reassess priorities and establish new financial foundation. Attorneys who understand the process can help it serve those who need it.