It is, of course, preferable not to be sued, and if you are sued, it is obviously better to win your case and not have a judgment entered against you. The judgment itself is bad for your credit, but the execution proceedings that may follow are the bigger problem. It is heart-breaking to have a creditor take and sell one’s home or to garnish the bank account that represents years of work and effort. However, sometimes bad things happen to good people, and it is helpful to know which of your assets cannot be attached by creditors.
Perhaps most significantly for married individuals in Pennsylvania, “entireties” property is exempt from execution proceedings and attachment by creditors of an individual spouse. This exemption applies to both real estate and personal property, like bank accounts. Although it is best to have this property identified as property held “by the entireties,” usually the simple designation of “husband and wife” in the title will be sufficient. Note that this type of ownership does not protect against judgment creditors of both spouses on the same debt.
Pennsylvania law does provide certain exemptions that everyone, whether married or not, can benefit from. For example, generally, a person’s wearing apparel, Bibles and school books, sewing machines and uniforms are not attachable by the person’s creditors. Not much protection, but it covers some of the vitals. (Query: what if the debtor owns an invaluable Gutenberg Bible? Is it an attachable investment? Exempt as a devotional book? Not always clear: but probably an easy case if the debtor cannot read German.)
Other exempt properties include the following:
- 401k accounts;
- Most pension rights;
- Generally, retirement or annuity fund for a self-employed person to the extent that the amounts do not exceed tax deductible amounts, as well as the income attributable to those deductible amounts;
- Traditional IRA funds and Roth IRA funds provided that the amounts do not exceed certain contribution limits. There is a limitation on this exception if these amounts were contributed within one year before the debtor filed for bankruptcy;
- Claims in compensation payments under the Workmen’s Compensation Act;
- Generally, a policy of group insurance or the proceeds therefrom;
- The net amount payable under any accident or disability insurance; and
- The net amount payable under an annuity contract or a life insurance policy for the benefit of the spouse, child or dependent relative of the judgment debtor.
- The assets of a trust held for a debtor, provided there is a �”spendthrift” provision in the trust document.
A listing of the available state exemptions is found at 42 Pa. C.S.A. �8124. What will be clear to anyone reviewing this list is the Legislature’s intention to protect the indigent, retirees, and close relatives of decedents. In addition to the above exemptions, federal law, under the auspices of ERISA, also provides protection (often broader in scope than the Pennsylvania exemptions) for retirement plans and employee benefit plans.
This information can be vital for judgment debtors, and conversely it is useful knowledge for a business extending credit to potential individual customers. If a financial statement reflecting primarily retirement assets and entireties assets is returned from a potential customer, the person extending the credit should realize that those assets will generally not be available to pay any judgments obtained against that customer alone, and they will be a very unlikely source of payments for bills and invoices sent to the customer in the normal course of business.
– Rod Fluck