Federal law under the bankruptcy code allows for each state to have its own exemption laws that creates a wide disparity among states as to the generosity of those provisions. Under section 522(b)(1) and (b)(2), a debtor may choose either the federal or state exemptions. Unless the state law that is applicable to the debtor specifically does not so author rise their choice. Congress granted each state legislature the option to determine if those subject to that states laws would be able to choose the federal exemptions.
As discussed, this state option is known as the "opt out" rule which resulted between a compromise of the United States Senate and the House bills containing exemption proposals (yes, there used to be compromise!). The historical background regarding this compromise is quite interesting and quirky, as there's been virtually no legislative history behind the compromise. By opting out, a state restricts the bankruptcy debtors within that particular state's authority from the use of the bankruptcy code exemptions and permits only the use of federal non-bankruptcy exemptions in those state exemptions. The loss the opt out provision results in a narrower choice for bankruptcy debtors in opt out states than for those in states that have not opted out. Pennsylvania has not opted out and your Chester County bankruptcy lawyer should advise you of the options you have between "state exemptions" or "federal exemptions".
This variation in choices from state to state introduces an argument that the federal bankruptcy laws are not applied uniformly to all debtors. The opt out by state legislatures restricts a debtor to the exemption of property understate law and non-bankruptcy federal law. In addition, a debtor restricted to state and non-bankruptcy federal exemptions may claim those exemptions connected to tenancy by entirety or joint tenancy. These tenancy exemptions are discussed more in a future blog post. Moreover, a debtor, whether or not subject to the opt out, may also claim an exemption in those retirement funds exempt. The fact that the opt out results in the application of state rather than federal exemptions means that the bankruptcy court will look to the applicable domicile state law for the applicable exemptions. It should be noted that the states exemptions must be available to a debtor whether or not the debtor isn't in bankruptcy. Finally, by the opt out present provision, Congress did not invite states to adopt bankruptcy only exemptions.