Can I Keep My House if I File for Bankruptcy in Pennsylvania? (2023)

Your house is usually one of the most important places for you. You may have fought long and hard to get it, and you may not want to give up the everlasting memories you forged there. However, all of these great things may be in jeopardy when your creditors try to take it away from you. Unfortunately, you could lose your home to your creditors if you build up excess debt. However, there are ways to protect your home from your creditors during bankruptcy proceedings. Young, Marr, Mallis & Associates’ Pennsylvania bankruptcy lawyers understand that people worry about losing their homes if they file for bankruptcy.

Two considerations must be addressed when determining if you can keep your home if you file for bankruptcy. First, are your mortgage payments current. If they are, then your home should be safe. If you file Chapter 7, a trustee could take possession of your home and sell it to pay your creditors. However, there are ways to protect your home under both federal and state law. Second, if you are behind in your mortgage payments, you could pay back what you are behind in a Chapter 13 bankruptcy.

However, this is only the “short” answer. The Bankruptcy Code is complicated, so the actual answer will depend on your specific circumstances. Below, our Philadelphia bankruptcy lawyers look at your home and bankruptcy in more detail. If you have any questions about bankruptcy and your home, call (215) 701-6519.

What Happens to My House if I File for Bankruptcy in Pennsylvania?

Every year, thousands of Americans file for bankruptcy due to financial hardship. Many times, and due to no fault of their own, homeowners see themselves buried under excess debt, which makes it hard to meet their monthly obligations. People may have to choose between buying the week’s groceries and paying their mortgage. That is why many debtors turn to bankruptcy as a means to deal with their financial hardship. In some cases, bankruptcy might help you protect your house.

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Generally, if you have credit card debt, it is considered “unsecured debt.” This means your credit card debt is not secured by collateral, such as a house. Therefore, your credit card company cannot go against assets like your house right away when they try to collect on your debt.

However, creditors will often file a lawsuit to collect on a debt. When a creditor is successful, and they often are, if they can prove you owe the debt and filed their claim within the statute of limitations, they will obtain a judgment. In Pennsylvania, a collection judgment creates a judgment lien against your home. Now, that unsecured debt is secured by your house. Technically, the creditor could foreclose on the property to collect the debt. However, because the mortgage, foreclosure, and court costs would have to be paid first, a credit card company has no financial incentive to pursue a sheriff’s sale. Nonetheless, you now have a lien on your home that will have to be satisfied when the property is sold. The judgment lien will also continue to accrue interest.

Things can be very different when you have secured debt. Unlike unsecured debt, your mortgage is secured by collateral. In other words, the bank is specifically authorized to go after your house if you don’t pay your mortgage. Banks will often enforce that right to go against your house regardless of your financial situation. One of the ways your mortgagor will do this is throughmortgage foreclosure in Pennsylvania.

Foreclosure is a legal process by which your creditor can take title to your house, sell it, and satisfy your debt with the proceeds. If your house is foreclosed and sold, you may be forced to move, which can add additional stress to an already difficult situation. You may be able to protect assets such as your home and your car through bankruptcy.

How Can Bankruptcy Help Protect My Home in PA?

Fortunately, you can often protect your home by filing for bankruptcy. There is a common idea that bankruptcy is some sort of “trap” or that bankruptcy will take everything from you. However, nothing could be farther from the truth.

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The very goal of the Bankruptcy Code is to assist debtors in restructuring and managing excess debt in order to avoid financial catastrophe and help creditors get paid. Over the years, bankruptcy has made economic recovery possible for millions of Americans.

Furthermore, the bankruptcy process has allowed many people to protect their homes against foreclosure actions from their creditors. You may wonder how you can protect your property from foreclosure by filing for bankruptcy in Pennsylvania. Fortunately, bankruptcy laws contain a series of protections to help debtors pay back what they owe.

As soon as you file for bankruptcy, you obtain the protections provided by an “automatic stay.” An automatic stay is a legal mechanism that prevents your creditors from engaging in debt collection actions or foreclosure while your bankruptcy case is underway. The effect of this protection is immediate, and your creditors will not be allowed to take your home away from you starting the moment the stay is activated.

What Type of Bankruptcy is Right for Me in Pennsylvania?

As a debtor, it is easy to feel lost and hopeless, especially when going through bankruptcy. Bankruptcy can help you get rid of debt or restructure your finances through a plan depending on the chapter you file under. If you want to protect your house, that might affect which chapter you choose.

There are two common chapters under which most debtors file for bankruptcy:Chapter 7andChapter 13.

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Chapter 7 Bankruptcy in Pennsylvania

Chapter 7, or “liquidation bankruptcy,” is a process where a debtor can discharge most or all of their unsecured debt. Recall, unsecured debt includes things like credit card debt that has no collateral, but it does not include secured debt like a mortgage. All potential candidates must go through a qualifying process before they can file for Chapter 7.

For instance, you will need to go through what is known as a. “means test.” A means test will compare your finances with your state’s median income to see whether you have enough disposable income to satisfy your debt. If your income falls below your state’s median income, you may be eligible for Chapter 7. However, if you are above your state’s median income, you may not use Chapter 7, but you might qualify under another chapter instead.

Chapter 7 is designed to eliminate debt. However, if you are behind on your mortgage and facing a sheriff’s sale, there are no mechanisms in Chapter 7 to cure mortgage arrears. While the automatic stay will stop any legal proceedings, including a sheriff’s sale, your mortgage lender will likely file a “motion for relief from stay.” This motion is a request to the court to remove the protection of the stay in relation to your home, allowing the mortgage company to move forward with the foreclosure. If you are behind in your mortgage payments and filed Chapter 7, the request will likely be granted.

On the other hand, what if you are current on your mortgage and are just trying to discharge unsecured debt? The answer depends on the equity you have in your home. Equity is the amount of money you would receive after selling the property and paying the mortgage balance and any closing costs. Under the federal exemptions, you can protect $25,150 in equity. If the equity in your home is greater than this amount, the trustee could sell the property, pay off all the costs, give you the $25,150, and use the remaining proceeds to pay your creditors. If you have significant equity in your property, you would have to file Chapter 13 or find another option other than bankruptcy.

Chapter 13 Bankruptcy in Pennsylvania

You can also file under Chapter 13 bankruptcy to be put on a wage earner’s plan. Through this process, debtors have the opportunity to devise a 3-to-5-year repayment plan with their creditors. Debtors must make sure to comply with all terms included in the repayment plan in order to have their debt discharged.

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If you are behind on your mortgage and wish to keep your home, Chapter 13 is the type of bankruptcy you want to file. Here is how it would work.

You are $50,000 behind on your mortgage and your mortgage lender filed a foreclosure lawsuit in court. Before your lender obtains a judgment, you retain our Philadelphia bankruptcy lawyers to file a Chapter 13 case. When preparing the case for filing, a bankruptcy plan is drafted. This plan proposes paying $50,000 over five years. In addition to the mortgage arrears, the bankruptcy plan will also pay the trustee’s fee and the remaining balance of our fees. On September 1st, your case is filed.

Once your bankruptcy is filed, you are responsible for two payments: your regular mortgage payment and your Chapter 13 bankruptcy plan payment. In this case, both would be due on the first of October. Therefore, within 30 days, you must send a payment to your mortgage company and the Chapter 13 trustee. If you fail to pay your mortgage company, a motion for relief from stay will be filed. If you fail to make the trustee payment, a motion to dismiss your case will be filed. To keep your house, you must continue to make both payments.

In about one month, your mortgage company will file a “proof of claim.” This document lists the amount you are behind, breaking the cost down in detail. Our Philadelphia bankruptcy lawyers will carefully review the claim to determine if an objection must be filed. For example, if the mortgage company miscalculated the escrow amount or the attorney fees are unreasonable, an objection could be filed. If the numbers are accurate, the bankruptcy plan will be amended to reflect the correct figure. This could raise or lower your monthly payment based on the difference between the actual figure and the estimated one on the original bankruptcy plan.

If you are filing Chapter 13 because you had too much equity in your home, you will have to pay that amount to your unsecured creditors. To illustrate this, imagine you have $60,000 in credit card debt. When calculating the equity in your home, it was determined that there was $15,000 of non-exempt equity after subtracting the mortgage, closing costs, and your available exemptions. Therefore, you would have to pay $15,000 to your creditors over the next five years. While this might not seem as good as Chapter 7, it is probably lower than any possible settlement amount.

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Judgment Liens and Philadelphia Bankruptcy

Previously we discussed judgment liens. When a creditor files a successful collection lawsuit in Pennsylvania, they obtain a judgment lien on your home. This lien will stay attached to your property until it is satisfied or the property is sold. Fortunately, you might be able to “avoid” a judgment lien through bankruptcy. To do so, the lien must impair your exemption.

To illustrate this, imagine you filed Chapter 7 to discharge your credit card debt and medical bills. However, before you filed for bankruptcy, one of your creditors obtained a judgment lien on your home. Because the equity in your home was low enough to file Chapter 7, the lien would impair your exemption. By filing a “motion to avoid lien,” the judgment lien would be converted to an unsecured debt and discharged with the rest of your obligations.

Bankruptcy Law Attorneys Offering Free Case Consultations in Pennsylvania

If you or someone you know is going through a tough time financially, we may be able to assist. Young Marr & Associates understands the difficulties associated with excess debt and how important it is to understand your rights when you’re in debt. For this reason, we dedicate our efforts to protecting your rights and helping you go through the bankruptcy process. Call our Bucks County bankruptcy attorneys today for a free, confidential consultation. Our phone number is (215) 701-6519.

FAQs

Can I keep my house in Chapter 7 in PA? ›

Can I file Chapter 7 and keep my house and car? Generally, your house and car are exempt, if you choose federal exemptions in Pennsylvania.

Can you file for bankruptcy and keep your house? ›

Your mortgage lender will not foreclose on your home if you file bankruptcy as long as you keep up with your mortgage payments. Bankruptcy only discharges your unsecured debts, such as: Credit card balances.

How much equity can I have in my home and still file Chapter 7 in Pennsylvania? ›

The federal homestead exemption for a residential property is $25,150. This is the amount of equity you can protect in Chapter 7. For example, say your home is worth $120,000 and your current mortgage balance at the time of filing is $100,000, leaving you $20,000 worth of equity.

What assets are exempt from creditors in PA? ›

Pennsylvania Bankruptcy Exemption Statutes
  • Personal Property.
  • Insurance.
  • Pensions (note: tax-exempt retirement accounts such as 401(k)s, 403(b)s, defined benefit plans, and IRAs and Roth IRAs up to $1,095,000 are exempt under federal law)
  • Public Benefits.
  • Miscellaneous.

How can I save my home after filing Chapter 7? ›

Most Chapter 7 bankruptcy filers can keep a home if they're current on their mortgage payments and don't have much equity. However, it's likely that a debtor will lose the home in a Chapter 7 bankruptcy if there's significant equity that the trustee can use to pay creditors.

What can you not do when filing Chapter 7? ›

Here are common mistakes you should avoid before filing for bankruptcy.
  1. Lying about Your Assets. ...
  2. Not Consulting an Attorney. ...
  3. Giving Assets (Or Payments) To Family Members. ...
  4. Running Up Credit Card Debt. ...
  5. Taking on New Debt. ...
  6. Raiding The 401(k) ...
  7. Transferring Property to Family or Friends. ...
  8. Not Doing Your Research.

How do you not lose your house in bankruptcy? ›

How could I keep my house if I file for bankruptcy? If you have a relatively small amount of equity in your home, and your outstanding debts are significantly more than you would pay off with your home equity, you might be able to keep your house, if you can continue to make payments to your mortgage lender.

Do I have to pay my mortgage if I declare bankruptcy? ›

Yes, you must pay your mortgage even if you plan to file bankruptcy. Much has been written about the ability of chapter 13 bankruptcy to help homeowners catch up on past due mortgage payments, but beware it's not a cure all.

What is the income limit for Chapter 7 in PA? ›

Pennsylvania Chapter 7 Bankruptcy Income Limit
# of PeopleAnnual Income
1$61,530
2$74,369
3$93,412
4$113,037
5 more rows
13 Jul 2022

How much does Chapter 7 cost in PA? ›

Bankruptcy Costs in Pennsylvania

For a Chapter 7 case, there is a filing fee of $245, an administrative fee of $78, and a trustee surcharge of $15 for a total of $338 in court costs. A Chapter 13 case has a filing fee of $235 and an administrative fee of $78 for a total of $313 in court courts.

Can a creditor take my house in Pennsylvania? ›

If a creditor wins a lawsuit against you, the creditor can have the court, a sheriff, or a constable take your property and sell it to pay the debt. This is called a levy or an execution sale. This can only be done after the creditor wins a lawsuit against you.

What is exempt from debt collection in PA? ›

The following items are exempt from execution by most creditors under Pennsylvania and Federal law: Most public benefits, Social Security benefits, money in retirement accounts (such as 401ks and pensions), and unemployment benefits. (SocialSecurity benefits are still exempt once they are in the bank.)

What personal property can be seized in a Judgement in Pennsylvania? ›

In addition to seizing bank accounts, you can also have the sheriff levy and sell personal assets of the debtor to collect a judgment in Pennsylvania. Personal assets can include furniture, tv's, jewelry, guns and firearms, other valuables or antiques.

What happens to my house after Chapter 7? ›

Your Home and the Chapter 7 Bankruptcy Trustee

After filing for Chapter 7, your property will go into a bankruptcy estate held by the Chapter 7 bankruptcy trustee appointed to your case. The trustee will sell property in the estate for the benefit of creditors. However, you don't lose everything you own.

What debts are forgiven in Chapter 7? ›

A Chapter 7 bankruptcy will generally discharge your unsecured debts, such as credit card debt, medical bills and unsecured personal loans. The court will discharge these debts at the end of the process, generally about four to six months after you start.

How long does it take for Chapter 7 to drop off? ›

A Chapter 7 bankruptcy can stay on your credit report for up to 10 years from the date the bankruptcy was filed, while a Chapter 13 bankruptcy will fall off your report seven years after the filing date. After the allotted seven or 10 years, the bankruptcy will automatically fall off your credit report.

What is the downside of Chapter 7? ›

Disadvantages to a Chapter 7 Bankruptcy:

The Trustee will sell any non-exempt property you own. If you want to keep a secured asset, such as a car or home, and it is not completely covered by your bankruptcy exemptions then Chapter 7 is not an option.

Can I spend money after filing Chapter 7? ›

The money you make after the filing date should first be used to make your monthly plan payment to the Trustee. After that, your money is yours to do with as you please, up to a point: if you need to make a large purchase such as a car or a house, you might need the court's permission. Consult with your attorney.

Is filing Chapter 7 worth it? ›

The undeniable upside to filing for Chapter 7 bankruptcy is the debt relief it provides. It has the power to lift a major burden off your shoulders in just a few months. Most unsecured debt can be discharged, including credit cards, medical bills, and personal loans.

What happens to my house when my bankruptcy is over? ›

What happens to my house when my bankruptcy is over? Your trustee will retain a legal interest in your house even after your bankruptcy ends. Trustees will regularly recalculate equity in a property to determine if there is value in selling the property to repay creditors.

Does bankruptcy Clear house debt? ›

A Chapter 7 bankruptcy wipes out your financial debt, including your mortgage, but you could lose your house. A Chapter 13 bankruptcy is more of a reorganization, and you can even catch up on payments as long as these are included in your plan.

Will I lose my house if I file Chapter 13? ›

With up-to-date mortgage payments filing for bankruptcy does not mean you will automatically lose your house. In fact, declaring bankruptcy can actually help you save your home by eliminating other debts that are making it difficult to keep up with your mortgage payments.

What would disqualify me from Chapter 7? ›

5 Reasons Your Bankruptcy Case Could Be Denied

The debtor failed to attend credit counseling. Their income, expenses, and debt would allow for a Chapter 13 filing. The debtor attempted to defraud creditors or the bankruptcy court. A previous debt was discharged within the past eight years under Chapter 7.

Who gets paid first in Chapter 7? ›

Chapter 7 bankruptcy allows liquidation of assets to pay creditors. Unsecured priority debt is paid first in a Chapter 7, after which comes secured debt and then nonpriority unsecured debt. Filing Chapter 7 typically involves completing forms and a review of assets by the trustee.

What are allowed expenses in a Chapter 7? ›

These can include expenses all households must take on monthly, including: Rent or home mortgage payments. Utilities like electricity, natural gas, cable TV, internet service and phone service. Municipal services like water, sewer and trash pickup.

Is it hard to get Chapter 7? ›

Even if you are in dire financial straits, Chapter 7 may not be for you. Applicants must clear assorted hurdles before a bankruptcy court approves the filing. Among them: As mentioned above, applicants must complete a debt counseling course with an approved credit counseling agency no more than 180 days before filing.

What's the difference between Chapter 7 and Chapter? ›

Chapter 7, which is known as liquidation bankruptcy, involves selling some or all of your property to pay off your debts.
...
How Does Bankruptcy Work?
Chapter 7Chapter 13
Type of bankruptcyLiquidationReorganization
Who can file?Individuals and business entitiesIndividuals only (including sole proprietors)
7 more rows
7 Apr 2021

What is the difference between Chapter 7 or 13? ›

The biggest difference between Chapter 7 and Chapter 13 is that Chapter 7 focuses on discharging (getting rid of) unsecured debt such as credit cards, personal loans and medical bills while Chapter 13 allows you to catch up on secured debts like your home or your car while also discharging unsecured debt.

How does Chapter 7 work pa? ›

Chapter 7 - Straight Bankruptcy

In a bankruptcy case under Chapter 7, you file a petition asking the court to discharge your debts. The basic idea in a Chapter 7 bankruptcy is to wipe out (discharge) your debts in exchange for giving up your property, except for exempt property which the law allows you to keep.

How long does a Chapter 7 last? ›

A Chapter 7 bankruptcy usually takes about four to six months from filing to final discharge, as long as the person who's filing has all their ducks in a row. There are a lot of moving parts to filing for Chapter 7 bankruptcy, and missing or delaying any one of them can slow down or stop the process.

How often do you file Chapter 7? ›

The simple answer? You can receive a Chapter 7 bankruptcy discharge every eight years. But you won't need to wait that long if you filed a different chapter before, such as Chapter 13, or if you plan to file another chapter in the future.

How can I protect my home from debt collectors? ›

Options for asset protection include:
  1. Domestic asset protection trusts.
  2. Limited liability companies, or LLCs.
  3. Insurance, such as an umbrella policy or a malpractice policy.
  4. Alternate dispute resolution.
  5. Prenuptial agreements.
  6. Retirement plans such as a 401(k) or IRA.
  7. Homestead exemptions.
  8. Offshore trusts.
9 Jul 2022

Can debt collectors just walk into your house? ›

They aren't allowed to force their way into your home and they can't bring a locksmith to help them get in. They'll normally leave if you refuse to let them in - but they'll be back if you don't arrange to pay your debt.

Is Pennsylvania a debtor friendly state? ›

Pennsylvania is not the easiest state to collect in. Debtors have a huge advantage when it comes to PA debt collection. The primary reasons are that “Marital Property” can be exempt, and Plaintiffs are not allowed to garnish wages (with a few minor exceptions i.e. landlord/tenant).

How long before a debt is uncollectible in Pennsylvania? ›

Statute of Limitations in Pennsylvania

Pennsylvania statute of limitations for a debt collector to take someone to court, is four years after the first missed payment. This doesn't mean, however, the debt collector has to stop seeking payment. It just means they can't sue for payment.

What is the 11 word phrase to stop debt collectors? ›

Summary: “Please cease and desist all calls and contact with me, immediately.” These are 11 words that can stop debt collectors in their tracks. If you're being sued by a debt collector, SoloSuit can help you respond and win in court.

How long does a lien stay on your property in Pennsylvania? ›

How long does a judgment lien last in Pennsylvania? A judgment lien in Pennsylvania will remain attached to the debtor's property (even if the property changes hands) for five years.

What happens if I don't pay a civil Judgement in Pennsylvania? ›

You usually have 30 days to appeal judgments. If you do not appeal, the creditor can pay a PA constable or sheriff money to try to collect the money from you.

Can you go to jail for debt in Pennsylvania? ›

‍You cannot be arrested because you owe money to a creditor. (Failure to pay child support is an exception.) As I noted in an earlier post, our country does not have debtors' prisons. Although a creditor may file a civil lawsuit against you to collect a debt, it cannot have you arrested or charged criminally.

How long can a Judgement be held against you in Pennsylvania? ›

Preserve your rights by reviving your judgment.

A judgment issued by a Magisterial District Justice or MDJ expires after 5 years if nothing is done. A judgment at the county Court of Common Pleas ceases to be effective after 20 years and may be overtaken by someone else's judgment after 5 years if nothing is done.

What assets can be seized in Chapter 7? ›

Motor vehicles, up to a certain value. Reasonably necessary clothing. Reasonably necessary household goods and furnishings. Household appliances.

Do I still own my home after Chapter 7? ›

Do you lose your house in bankruptcy? If you do not have significant home equity and the mortgage on your home is still current, you will not lose your house if you file for Chapter 7 bankruptcy. Most people who file Chapter 7 bankruptcy are able to retain all of their assets, which can include your house.

What debts Cannot be discharged in Chapter 7? ›

Debts dischargeable in a chapter 13, but not in chapter 7, include debts for willful and malicious injury to property, debts incurred to pay non-dischargeable tax obligations, and debts arising from property settlements in divorce or separation proceedings.

Do you have to pay mortgage after Chapter 7? ›

Filing for Chapter 7 bankruptcy will wipe out your mortgage obligation. Still, if you aren't willing to pay the mortgage, you'll have to give up the home because your lender's right to foreclose doesn't go away when you file for Chapter 7.

How long does Chapter 7 take to fall off? ›

A Chapter 7 bankruptcy can stay on your credit report for up to 10 years from the date the bankruptcy was filed, while a Chapter 13 bankruptcy will fall off your report seven years after the filing date. After the allotted seven or 10 years, the bankruptcy will automatically fall off your credit report.

How much will credit score increase after Chapter 7 falls off? ›

When a chapter 7 falls off your report, you can expect a boost of around 50–150 points on your credit score. Can't wait 7–10 years for it to fall off? Try partnering with an expert — like Credit Glory — & dispute any inaccurate items on your report!

How long can I stay in the house after Chapter 7? ›

In conclusion, you will typically have about 60 days and all the way up to 1 year after filing the bankruptcy before you have to leave the home.

Can a creditor come after you after Chapter 7? ›

Can a debt collector try to collect on a debt that was discharged in bankruptcy? Debt collectors cannot try to collect on debts that were discharged in bankruptcy. Also, if you file for bankruptcy, debt collectors are not allowed to continue collection activities while the bankruptcy case is pending in court.

What happens if you win a lot of money while in Chapter 7? ›

Any winnings above your allowed exemption amounts go to the bankruptcy trustee to the extent necessary to pay your debts. However, if there is money left after all of your debts and the costs of the bankruptcy are paid, the excess will be returned to you.

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