Bankruptcy Law and Your Mortgage in Maryland

Bankruptcy can be an overwhelming experience, particularly for homeowners in Maryland. Understanding how bankruptcy law interacts with your mortgage is crucial for making informed decisions. Maryland offers two types of bankruptcy for individuals: Chapter 7 and Chapter 13. Each affects your mortgage differently, so it’s essential to comprehend the implications.

Under Chapter 7 bankruptcy, also known as liquidation bankruptcy, most unsecured debts are discharged, but certain secured debts like mortgages must still be addressed. In this case, your lender retains the right to pursue foreclosure on the property if mortgage payments are not up to date. Filing for Chapter 7 may provide you temporary relief from foreclosure, but it does not permanently halt the process if you cannot resume payments.

On the other hand, Chapter 13 bankruptcy, often referred to as reorganization bankruptcy, allows you to keep your home while restructuring your debt. This option is beneficial for those who have fallen behind on mortgage payments but wish to catch up. In Maryland, homeowners can propose a repayment plan that enables them to make up missed payments over three to five years, thereby retaining their home as long as they continue to make their current mortgage payments.

An important aspect to consider is the automatic stay that occurs upon filing for bankruptcy. This stay temporarily halts all collection actions, including foreclosure proceedings. However, it is vital to remember that this is a temporary measure. If you are unable to keep up with mortgage payments or negotiate a new agreement with your lender, you may still face foreclosure after bankruptcy proceedings are concluded.

Moreover, the potential for reaffirming your mortgage is another factor to consider. Reaffirmation is a legal agreement that allows borrowers to retain personal liability for a mortgage after bankruptcy. In Maryland, reaffirming your mortgage can make sense if you wish to keep your home, but it is essential to ensure that you can meet the future payment obligations.

In addition, understanding Maryland’s homestead exemption is crucial. This exemption can protect a certain amount of equity in your primary residence during bankruptcy proceedings, which may vary based on property location. Depending on your situation, this could impact how much additional equity you have available for creditors during liquidation.

It is advisable to consult with a qualified bankruptcy attorney who can help navigate the complexities of bankruptcy law. They help ensure that you are aware of all your options and the implications for your mortgage, enabling you to make strategic decisions that align with your financial goals.

In summary, whether you choose Chapter 7 or Chapter 13 bankruptcy, understanding how these choices impact your mortgage is critical for homeowners in Maryland. With the right legal guidance, you can work towards a solution that safeguards your home while addressing your financial challenges.