Bankruptcy In Pennsylvania: Explore The Alternative

According to the U.S. Census Bureau, the total state and local government debt in Pennsylvania was $82.6 billion in 2019.According to the American Bankruptcy Institute, there were 14,834 total bankruptcy filings in Pennsylvania in 2020. Of the total filings in 2020, 11,526 were Chapter 7 bankruptcy cases, which is the most common type of bankruptcy filed in Pennsylvania. In 2020, there were 3,104 Chapter 13 bankruptcy cases filed in Pennsylvania, which is another common type of bankruptcy. The number of Chapter 11 bankruptcy filings in Pennsylvania in 2020 was 110. The Eastern District of Pennsylvania had the highest number of bankruptcy filings in 2020 with 9,645, followed by the Western District with 4,171 filings.

Bankruptcy Laws In Pennsylvania

In Pennsylvania, bankruptcy cases are handled in federal court. The two main types of bankruptcy for individuals are Chapter 7 and Chapter 13. Here’s some information on each:

• Chapter 7 bankruptcy: This is sometimes called “liquidation” bankruptcy because it involves selling off some of the debtor’s assets to pay off creditors. In Pennsylvania, you must pass a means test to qualify for Chapter 7 bankruptcy. This test looks at your income and expenses to determine whether you have enough disposable income to pay off your debts. If you don’t pass the means test, you may still be able to file for Chapter 13 bankruptcy.
• Chapter 13 bankruptcy: This type of bankruptcy involves creating a repayment plan to pay off your debts over a period of three to five years. It can be a good option if you don’t qualify for Chapter 7 bankruptcy or if you have assets that you want to keep. In Pennsylvania, your debts must be below certain limits to file for Chapter 13 bankruptcy.

Pennsylvania also has some specific exemptions that allow you to keep certain assets during bankruptcy. For example, you may be able to keep your home, car, and personal property up to certain values. Additionally, Pennsylvania does not allow wage garnishment for most consumer debts, but there are some exceptions.

The two main types of bankruptcy for businesses in Pennsylvania are Chapter 7 and Chapter 11. Here’s some information on each:

• Chapter 7 bankruptcy: This type of bankruptcy is also called “liquidation” bankruptcy for businesses. In Chapter 7 bankruptcy, a trustee is appointed to liquidate the assets of the business and distribute the proceeds to the creditors. Once the assets have been liquidated, the business is dissolved. Chapter 7 bankruptcy is generally used for businesses that are unable to continue operations or reorganize their debts.
• Chapter 11 bankruptcy: This type of bankruptcy is also called “reorganization” bankruptcy for businesses. In Chapter 11 bankruptcy, the business creates a plan to restructure its debts and operations to become profitable again. The plan must be approved by the bankruptcy court and creditors. Chapter 11 bankruptcy is generally used for businesses that have a chance of becoming profitable again in the future.

Learn More about the 3 main types of bankruptcy

Things To Keep In Mind When Considering Business Bankruptcy In Pennsylvania

If you’re considering filing for business bankruptcy in Pennsylvania, there are several important things to keep in mind. Here are some key considerations:

1. Consult with a bankruptcy attorney: Bankruptcy can be a complex process, and it’s important to work with an experienced bankruptcy attorney who can guide you through the process and help you make informed decisions.
2. Determine which type of bankruptcy is best for your business: As I mentioned earlier, Chapter 7 and Chapter 11 bankruptcy are the two main types of bankruptcy available for businesses in Pennsylvania. You should carefully consider which type is best for your business based on factors such as the amount of debt you owe, the structure of your business, and your ability to reorganize and become profitable again.
3. Understand the impact of bankruptcy on your business: Bankruptcy can have significant and long-lasting effects on your business’s credit and reputation. It’s important to understand these impacts and plan for how to address them.
4. Consider alternatives to bankruptcy: Bankruptcy should be considered as a last resort. There may be alternatives to bankruptcy that can help you address your financial issues without filing for bankruptcy, such as negotiating with creditors, selling assets, or restructuring your business.
5. Prepare for the bankruptcy process: If you do decide to file for bankruptcy, you should be prepared for the bankruptcy process. This may include gathering financial records, preparing a list of assets and liabilities, and developing a plan for how to address your debts.

What Debts Are Not Discharged In Bankruptcy?

While bankruptcy can discharge many types of debts, there are certain debts that are not eligible for discharge in bankruptcy. Here are some examples:

1. Certain tax debts: Some tax debts, such as those that are less than three years old or those related to fraudulent returns, cannot be discharged in bankruptcy.
2. Student loans: In general, student loan debts cannot be discharged in bankruptcy, unless the debtor can demonstrate “undue hardship,” which is a very high standard to meet.
3. Child support and alimony: Debts related to child support and alimony cannot be discharged in bankruptcy.
4. Debts incurred through fraud: Debts that were incurred through fraud or other wrongful conduct, such as embezzlement or theft, are generally not dischargeable in bankruptcy.
5. Fines and penalties: Fines and penalties owed to government agencies, such as traffic tickets or court fines, are generally not dischargeable in bankruptcy.
6. Debts for personal injury caused by drunk driving: Debts for personal injury or wrongful death caused by drunk driving or other similar acts cannot be discharged in bankruptcy.

How Does Bankruptcy Affect Credit Score And Your Future Ability To Get A Loan 

Filing for bankruptcy can have a significant impact on your credit score and ability to get a loan in the future. Here are some things to keep in mind:

1. Credit score impact: Filing for bankruptcy can lower your credit score by a significant amount, potentially up to 200 points or more. The exact impact will depend on your individual credit history and other factors.
2. Timeframe: The length of time bankruptcy stays on your credit report varies depending on the type of bankruptcy you file. A Chapter 7 bankruptcy will typically stay on your credit report for 10 years, while a Chapter 11 bankruptcy will remain on your report for 7 years.
3. Access to credit: After filing for bankruptcy, it may be difficult to obtain credit in the future, as lenders may view you as a higher risk borrower. You may also face higher interest rates and fees when you are able to obtain credit.
4. Rebuilding credit: While filing for bankruptcy can have a significant impact on your credit score, it is possible to rebuild your credit over time. This may involve taking steps such as paying bills on time, maintaining a low debt-to-income ratio, and establishing a good payment history.
5. Bankruptcy on loan applications: Bankruptcy may also be a factor that lenders consider when you apply for a loan in the future. Some lenders may be less likely to approve loans to individuals who have filed for bankruptcy, while others may offer loans with higher interest rates and fees.

Will You Lose Your Home Or Car In Bankruptcy In Pennsylvania?

Whether you will lose your home or car in bankruptcy in Pennsylvania will depend on several factors, including the type of bankruptcy you file, the equity you have in your home or car, and the exemptions you are eligible for. In a Chapter 7 bankruptcy the bankruptcy trustee may sell non-exempt assets to repay creditors. However, in Pennsylvania, you can choose to use either the state or federal exemptions to protect your assets. The Pennsylvania exemptions include a homestead exemption, which allows you to exempt up to $30,000 of equity in your primary residence, and a motor vehicle exemption, which allows you to exempt up to $3,000 of equity in your car. If you have more equity in your home or car than the exemption allows, the trustee may sell the asset to repay creditors. However, it’s important to note that most people who file for bankruptcy in Pennsylvania are able to keep their homes and cars by using the available exemptions. In a Chapter 13 bankruptcy you can keep your home and car as long as you are able to continue making payments on the loans secured by the assets. In a Chapter 13 bankruptcy, you develop a repayment plan that allows you to catch up on missed payments over a period of three to five years.

Does Bankruptcy Eliminate Tax Debt?

Bankruptcy in Pennsylvania can have different effects on tax debts depending on the type of tax debt and the type of bankruptcy you file. In general, some tax debts may be eligible for discharge in bankruptcy, while others may not be eligible. Here are some general rules to keep in mind:

1. Dischargeable tax debts: In a Chapter 7 bankruptcy, income tax debts may be eligible for discharge if they meet certain criteria, such as being at least three years old, having been assessed at least 240 days before filing, and not being related to fraud or willful evasion. In a Chapter 13 bankruptcy, tax debts can be included in the repayment plan, and the debtor may be able to pay back less than the full amount owed.
2. Non-dischargeable tax debts: Some tax debts are not eligible for discharge in bankruptcy, such as tax debts that were incurred through fraud or willful evasion, trust fund taxes (such as payroll taxes), and taxes that are less than three years old.
3. Tax liens: Filing for bankruptcy does not necessarily remove tax liens. If the IRS or state taxing authority has already placed a lien on your property before you file for bankruptcy, the lien may remain in place after the bankruptcy case is completed.

Statute Of Limitations For Collections In Pennsylvania

The statute of limitations for collections in Pennsylvania varies depending on the type of debt. The statute of limitations is the period of time during which a creditor can sue you to collect a debt. Once the statute of limitations has expired, the creditor can no longer sue you to collect the debt. Here are the statute of limitations for collections in Pennsylvania:

1. Written contracts: 4 years
2. Oral contracts: 4 years
3. Promissory notes: 4 years
4. Open accounts (credit cards): 4 years
5. Judgments: 5 years (with the possibility of renewal for an additional 5 years)

It’s important to note that the statute of limitations is based on the date of the last payment or activity on the account. If you make a payment on a debt or make any other activity on the account, the statute of limitations may reset, and the creditor may be able to sue you to collect the debt. If you are being contacted by a creditor or debt collector, it’s important to know your rights under the Fair Debt Collection Practices Act (FDCPA). The FDCPA prohibits debt collectors from engaging in certain abusive, deceptive, or unfair practices, and gives consumers the right to dispute a debt and request verification of the debt.

The Negative Side Of Bankruptcy

While bankruptcy can provide a fresh start for individuals and businesses struggling with overwhelming debt, there are some potential drawbacks to consider. Here are some cons of bankruptcy in Pennsylvania:

1. Damage to credit: Bankruptcy can have a significant negative impact on your credit score and may stay on your credit report for up to 10 years. This can make it more difficult to obtain credit or loans in the future, and may result in higher interest rates or other unfavorable terms.
2. Cost: Filing for bankruptcy in Pennsylvania can be expensive, and may involve attorney fees, court fees, and other costs. In addition, there may be ongoing costs associated with bankruptcy, such as fees for credit counseling and debtor education courses.
3. Loss of assets: Depending on the type of bankruptcy you file and the assets you have, you may be required to give up some of your assets to repay creditors. This can include personal property, such as a home or car, as well as business assets.
4. Public record: Bankruptcy is a matter of public record, which means that your bankruptcy filing will be available to the public and may be viewed by potential employers, landlords, or others.
5. Potential for fraud: Bankruptcy fraud is a serious crime, and individuals or businesses that attempt to conceal assets or provide false information to the court may face penalties or even criminal charges.

Compare the Pros and Cons of Bankruptcy: Pros and Cons of Filing Bankruptcy

Do People Regret Filing For Bankruptcy?

While filing for bankruptcy can provide relief from overwhelming debt and a fresh start, there are some reasons why some people may regret filing for bankruptcy. Here are some possible reasons:

1. Damage to credit: Filing for bankruptcy can have a significant negative impact on your credit score, which can make it more difficult to obtain credit or loans in the future. This can result in higher interest rates, limited options for housing or employment, and other negative consequences.
2. Loss of assets: Depending on the type of bankruptcy you file and the assets you have, you may be required to give up some of your assets to repay creditors. This can include personal property, such as a home or car, as well as business assets.
3. Potential for fraud: Bankruptcy fraud is a serious crime, and individuals or businesses that attempt to conceal assets or provide false information to the court may face penalties or even criminal charges.
4. Emotional toll: Filing for bankruptcy can be a stressful and emotionally challenging experience, as it involves admitting financial failure and potentially losing assets that are important to you.
5. Stigma: There is still some stigma associated with bankruptcy, which can make it difficult to discuss with others or to move on from the experience.

Not Qualified For Bankruptcy?

If you do not qualify for bankruptcy, you may need to explore other debt relief options, such as debt settlement.

If you do not qualify for bankruptcy in Pennsylvania, it may mean that you do not meet the eligibility requirements for filing under Chapter 7 or Chapter 13 of the Bankruptcy Code. In this case, you may need to consider other options for addressing your debt, such as debt settlement. Debt settlement involves negotiating with your creditors to settle your debt for less than the full amount owed.

There are some potential benefits to debt settlement over bankruptcy that may make it a more favorable option for some individuals.

1. No BK on your credit report: Filing for bankruptcy shows on your credit report for up to 10 years. On the other hand, debt settlement does not show as a bankruptcy.
2. Cost: Filing for bankruptcy can be expensive, with filing fees, attorney fees, and other costs adding up quickly.
3. Emotional Impact: People report horror stories of the negative emotional impact of BK.
4. With a bankruptcy for the rest of their life: Employers or lenders can ask if someone has filed BK for the rest of their life. It is much less likely to be asked if one ever used debt settlement to pay back an agreed to amount.
5. Control: With debt settlement, you may have more control over the process and negotiations with your creditors, whereas with bankruptcy, a court will make the final decision.
6. Less severe consequences: Filing for bankruptcy can have significant consequences, such as the liquidation of your assets, whereas debt settlement may allow you to negotiate a more manageable repayment plan while keeping your assets.

Bankruptcy vs. Debt Relief: What’s Right For You and How We May Be Able To Help

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