How Bankruptcy Affects Joint Debtors in Maryland

Bankruptcy can significantly impact individuals and businesses alike, particularly in a joint debtor situation. In Maryland, joint debtors are often married couples or partners who file for bankruptcy together. Understanding how bankruptcy affects joint debtors is crucial for navigating the legal and financial implications.

When joint debtors file for bankruptcy, they typically aim to relieve themselves from overwhelming debts while protecting their assets. However, several factors come into play that can affect both individuals involved. The two most commonly utilized types of bankruptcy for individuals are Chapter 7 and Chapter 13.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy, also known as liquidation bankruptcy, allows joint debtors to eliminate most unsecured debts, such as credit cards and medical bills. In Maryland, the dual filing can lead to a couple’s combined income being assessed to determine eligibility for filing. If their income surpasses the state’s median income for their household size, they may not qualify for Chapter 7. Furthermore, any non-exempt assets might be sold to repay creditors.

This raises a critical consideration for joint debtors: whether to exempt or non-exempt certain assets. Maryland offers a list of exemptions that allow debtors to keep some of their property, such as equity in a home and retirement accounts. If one partner has significantly more assets, joint debtors might face challenges, potentially resulting in the need to reorganize their financial strategy.

Chapter 13 Bankruptcy

For those who may not qualify for Chapter 7 or prefer to keep certain assets, Chapter 13 bankruptcy presents an alternative. This type of bankruptcy allows joint debtors to create a repayment plan to pay off debts over three to five years. During this time, creditors are often prohibited from pursuing collections, offering much-needed relief.

In a joint filing, the court looks at the couple's joint income and expenses. Both debtors' income will typically be combined to determine the repayment plan’s feasibility. It’s essential for both partners to be transparent about their financial situations, as any discrepancies could lead to complications in the bankruptcy process.

Effects on Credit Score

Another significant impact of bankruptcy for joint debtors in Maryland is on their credit score. Filing for bankruptcy can lower credit scores significantly, typically by 100 points or more. This reduction occurs because bankruptcy indicates a failure to manage debt. It will be listed on each debtor’s credit report for up to ten years, making it more challenging to obtain new credit after the bankruptcy process is complete.

Community Property Considerations

Maryland is not a community property state; however, any marital property acquired during the marriage could still be impacted during bankruptcy. If one spouse incurs debt, the other spouse might also be liable, depending on how the debt was acquired and whether that property is considered marital property.

Legal and Financial Counseling

Before filing for bankruptcy, joint debtors should consult with a qualified bankruptcy attorney familiar with Maryland laws. A legal expert can provide tailored advice on the best course of action based on the couple's unique financial circumstances. Additionally, engaging in financial counseling can help both partners understand the ramifications and improve their financial literacy moving forward.

Conclusion

Filing for bankruptcy as joint debtors in Maryland is a significant decision that can affect both partners in numerous ways. From the type of bankruptcy chosen to impacts on credit scores and debt repayment plans, it’s imperative for couples to fully understand the implications of their decision and to seek professional guidance. Engaging in this process together can offer support and clarity, paving the way for a financial fresh start.