Bankruptcy Law and Liens in Maryland

Bankruptcy law can be a complex area to navigate, particularly when it comes to understanding how liens work in Maryland. A lien is a legal right or interest that a lender has in the borrower’s property, granted until the debt obligation is satisfied. When individuals or businesses in Maryland file for bankruptcy, the treatment of liens can significantly impact their financial situation.

In Maryland, filings for bankruptcy are governed by federal bankruptcy laws, primarily the U.S. Bankruptcy Code. There are two common types of bankruptcy that individuals and businesses may file: Chapter 7 and Chapter 13. Each type of bankruptcy affects liens differently.

Chapter 7 Bankruptcy and Liens

Chapter 7 bankruptcy, often referred to as "liquidation bankruptcy," allows individuals to eliminate most of their unsecured debts, like credit card debts and medical bills. However, secured debts—those tied to a lien—are treated differently. In Maryland, when someone files for Chapter 7, the automatic stay immediately halts collection efforts from creditors. However, secured creditors can still move to enforce their liens, which may include repossessing property or foreclosing on a home.

In Maryland, if a debtor fails to reaffirm a secured debt, the creditor may reclaim the property after the bankruptcy is discharged. This can leave individuals with reduced equity or no asset at all if the lien amount exceeds the property’s value.

Chapter 13 Bankruptcy and Liens

Chapter 13 bankruptcy, also known as "reorganization bankruptcy," allows debtors to keep their assets and repay creditors over a three to five-year repayment plan. In this scenario, liens can be modified under specific conditions. For example, if the value of the secured property is less than the lien amount, debtors may be able to "cram down" the lien to the property’s current fair market value, which can significantly reduce the debt owed.

Additionally, Chapter 13 allows debtors to cure defaulted payments on secured debts over the course of their repayment plan. This means that if homeowners fall behind on mortgage payments, they can spread the past due amounts over the duration of the plan, potentially saving their home from foreclosure.

Avoiding Liens in Bankruptcy

Individuals considering bankruptcy should also be aware of the potential consequences of liens before filing. Certain liens—like those for taxes or child support—may not be discharged in bankruptcy. Moreover, fraudulent liens aimed at preventing a debtor from discharging their debts may be contested in court.

Understanding Maryland’s exemption laws is also crucial. Exemptions can protect some property from being taken by creditors or during bankruptcy proceedings. As the laws and interpretation can be complex, engaging with a knowledgeable bankruptcy attorney can help maximize your protections and clarify how liens may affect your specific situation.

Conclusion

In summary, bankruptcy law and liens in Maryland present various challenges for debtors seeking financial relief. Whether considering Chapter 7 or Chapter 13, understanding how liens impact property and debt obligations is essential for making informed decisions. Consulting a qualified attorney can provide clarity and guidance tailored to individual circumstances, ensuring that debtors can navigate the intricacies of bankruptcy effectively.