Bankruptcy exemptions protect the equity in your property from creditors and the bankruptcy court—preventing the equity from being used to pay your creditors. Equity is the value of property after you subtract the amount of any liens against the property from its fair market value.

The equity in your home is one such asset in bankruptcy. And bankruptcy exemptions—including the homestead exemption—allow you to protect the property you will need to maintain a home and employment after bankruptcy.

Bankruptcy exemption amounts vary by state, so the amount you will be able to protect will depend on where you live and the type of bankruptcy you file (Chapter 7 or Chapter 13).

In Pennsylvania, bankruptcy exemptions allow individuals to protect certain property from creditors when they file for bankruptcy. The state does not have a specific homestead exemption, but individuals can use federal bankruptcy exemptions instead. Under federal exemptions, as of 2021, up to $25,150 in equity in a primary residence can be protected. This amount is subject to change and is adjusted every three years. Pennsylvania also allows debtors to choose between state and federal exemption systems, but they cannot mix and match from both. The choice of exemptions will affect the amount of equity in a home and other assets that can be protected. Additionally, the type of bankruptcy filed—Chapter 7 or Chapter 13—will influence which assets can be retained. In Chapter 7, non-exempt assets can be liquidated to pay creditors, while Chapter 13 involves a repayment plan that may allow debtors to keep more of their property. It's important for individuals considering bankruptcy to consult with an attorney to understand how exemptions apply to their specific situation and to make informed decisions about asset protection.