Bankruptcy Laws in Maryland: How to Handle Secured Debt
Understanding bankruptcy laws in Maryland is crucial for individuals facing financial difficulties, particularly when it comes to managing secured debt. Secured debts are loans backed by collateral, such as a mortgage for a home or an auto loan for a vehicle. In Maryland, the treatment of secured debts during bankruptcy varies significantly depending on the type of bankruptcy filed.
There are two primary types of bankruptcy individuals may file for in Maryland: Chapter 7 and Chapter 13. Each has its own implications for secured debt, and knowing these can help you make the best decisions for your financial future.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy, often referred to as "liquidation bankruptcy," allows individuals to eliminate most of their unsecured debts. However, it also involves the treatment of secured debts. When filing for Chapter 7 in Maryland:
- Secured Debt Defaults: If you've defaulted on a secured debt, creditors may seek to repossess the collateral. For instance, if you are behind on your car payments, your lender may take your vehicle.
- Reaffirmation Agreements: If you wish to keep your secured property, you can enter into a reaffirmation agreement with your creditor. This agreement allows you to retain the asset while continuing to make the agreed-upon payments, but it also means you remain personally liable for the debt.
- Exemptions: Maryland has specific exemptions that may allow you to protect some of your secured assets. It's important to evaluate these exemptions with a bankruptcy attorney to understand which assets may be protected under state law.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy, known as "reorganization bankruptcy," allows individuals to create a repayment plan to pay off their debts over a period of three to five years. This option is beneficial for those with secured debts they wish to retain.
- Repayment Plans: Under Chapter 13, you can include your secured debts in your repayment plan. This means you can catch up on missed payments and keep your property. However, you must keep up with ongoing payments as they accrue during the repayment period.
- Modification of Secured Debt: Depending on your situation, you may be able to modify the terms of your secured debt. For instance, you could potentially reduce the interest rate or extend the loan term, making your payments more manageable.
- Value of Collateral: In Chapter 13, the treatment of secured debts also considers the current market value of the collateral. If you owe more than your asset is worth, you might be able to pay the asset’s value rather than the full amount of the loan.
Conclusion
Understanding how secured debt is handled under Maryland bankruptcy laws is essential for anyone considering filing for bankruptcy. Whether you choose Chapter 7 or Chapter 13, each has unique benefits and challenges that must align with your financial goals. It’s advisable to consult with a bankruptcy attorney who can guide you through the process, ensuring you make informed decisions regarding your secured debts. By taking the right steps, you can pave the way towards financial recovery and regain control of your financial future.