How to Deal with Secured and Unsecured Debt in Maryland Bankruptcy
Filing for bankruptcy in Maryland can be a daunting experience, especially when it comes to understanding how to deal with secured and unsecured debt. Knowing the difference between these types of debts and how they are treated in bankruptcy is crucial for making informed decisions. This guide will help you navigate through the complexities of secured and unsecured debt during the bankruptcy process in Maryland.
Understanding Secured and Unsecured Debt
Secured debt is backed by collateral. This means that if you fail to make payments, the lender has the legal right to take possession of the collateral. Common examples of secured debt include mortgages and auto loans. On the other hand, unsecured debt is not tied to any specific asset. If you default on unsecured debt, creditors cannot claim your property, but they can take legal action to recover the amount owed. Examples include credit card debt, medical bills, and personal loans.
Chapter 7 vs. Chapter 13 Bankruptcy in Maryland
Maryland residents can file for Chapter 7 or Chapter 13 bankruptcy, each offering different ways to handle secured and unsecured debts:
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is designed for individuals with limited income. In this process, most unsecured debts can be discharged, meaning you are no longer legally required to pay them. However, secured debts require careful consideration:
- If you want to keep your secured assets, such as your home or car, you need to continue making payments or redeem the asset by paying its current market value.
- Failure to keep up with payments may lead to the lender repossessing the collateral.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy, also known as a wage earner's plan, is aimed at individuals with a regular income who can pay back a portion of their debts over time. This plan allows you to reorganize your debts and often provides more flexibility with secured debts:
- In Chapter 13, you can potentially keep your home or car if you can create a feasible repayment plan that the court approves.
- This plan usually lasts 3 to 5 years, during which you're required to make regular payments to your creditors.
Steps to Take When Dealing with Debt in Maryland Bankruptcy
Here are some practical steps to consider when dealing with secured and unsecured debt in Maryland bankruptcy:
1. Assess Your Financial Situation
Begin by gathering all financial documents, including your debts, income, and assets. Create a list that distinguishes between secured and unsecured debts. This will give you a clearer picture of your financial obligations.
2. Consult a Bankruptcy Attorney
Engaging a qualified bankruptcy attorney in Maryland can make a significant difference. They can provide guidance tailored to your specific situation and help you understand your rights and options.
3. Decide Which Bankruptcy Chapter to File
Based on your financial situation, your attorney will help you decide whether Chapter 7 or Chapter 13 bankruptcy is more suitable for you. Consider factors like your income, types of debts, and whether you wish to retain secured assets.
4. Complete Required Credit Counseling
Before filing for any bankruptcy option, you must complete a credit counseling course from an approved provider. This course will help you evaluate your financial situation and discuss alternatives to bankruptcy.
5. File the Bankruptcy Petition
Your attorney will assist in preparing and filing the bankruptcy petition with the court. Ensure all required documents are submitted, as any discrepancies could delay the process.
6. Attend the Meeting of Creditors
After filing for bankruptcy, a meeting of creditors (also known as a 341 meeting) will take place. During this meeting, you will answer questions about your debts, assets, and financial affairs. It is critical to be prepared and honest during this process.
7. Complete Financial Management Course
Upon approval of your bankruptcy plan, you are required to complete a financial management course. This course will equip you with tools to manage your finances more effectively in the future.
Conclusion
Dealing with secured and unsecured debt during the bankruptcy process in Maryland doesn't have to be overwhelming. By understanding the differences between these debts and taking strategic steps, you can navigate your bankruptcy journey more effectively. Remember, working with a knowledgeable bankruptcy attorney can provide you with invaluable support and guidance throughout the process.