How to Deal with Unsecured Debt in Maryland Bankruptcy
Dealing with unsecured debt can be overwhelming, especially for those considering bankruptcy in Maryland. Unsecured debt refers to loans or credit that are not backed by collateral, such as credit cards, medical bills, and personal loans. If you find yourself drowning in unsecured debt, understanding how bankruptcy works in Maryland, particularly Chapter 7 and Chapter 13 bankruptcy, can provide you with a path toward financial relief.
Understanding Bankruptcy Options in Maryland
In Maryland, individuals with unsecured debt have two primary bankruptcy options: Chapter 7 and Chapter 13. Each option has distinct processes and outcomes, making it essential to choose the right one for your situation.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy, also known as liquidation bankruptcy, allows individuals to eliminate most unsecured debts quickly. In Maryland, to qualify for Chapter 7, you must pass a means test that evaluates your income against the median income for your household size. If your income is below this threshold, you may proceed with filing for Chapter 7.
Once your Chapter 7 bankruptcy is approved, an automatic stay goes into effect, halting all collection activities from creditors. Most unsecured debts, including credit card balances and medical bills, can be discharged, providing you a fresh start. However, you may need to liquidate non-exempt assets, meaning you could potentially lose items that aren’t protected under Maryland’s bankruptcy exemptions.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy, often referred to as reorganization bankruptcy, is designed for individuals with regular income who wish to repay a portion of their unsecured debts over a three to five-year plan. This option is ideal for those who may not qualify for Chapter 7 or want to retain their assets. During the bankruptcy process, you develop a repayment plan based on your income, expenses, and debt obligations.
Similar to Chapter 7, filing for Chapter 13 triggers an automatic stay to protect you from creditor harassment. Upon successfully completing your repayment plan, any remaining unsecured debt may be discharged. This option can help you catch up on past-due debts or prevent foreclosure on your home.
Steps to Take Before Filing for Bankruptcy
Before deciding to file for bankruptcy in Maryland, consider the following steps:
- Assess Your Financial Situation: Create a detailed list of your debts, income, and expenses to understand your financial position.
- Consult a Bankruptcy Attorney: A qualified bankruptcy attorney can help you navigate the legal process, identify the best option for your situation, and prepare necessary paperwork.
- Consider Credit Counseling: Maryland requires individuals to undergo credit counseling from an approved agency before filing for bankruptcy. This counseling can help you explore alternatives to bankruptcy.
Impact on Credit and Recovery
While filing for bankruptcy can have a negative impact on your credit score, it can also provide an opportunity for rebuilding your financial future. Bankruptcy stays on your credit report for seven to ten years, depending on the chapter filed. Utilize this time to establish new credit responsibly, maintain consistent payments, and rebuild a healthier financial profile.
Conclusion
Dealing with unsecured debt can be a daunting experience, but Maryland’s bankruptcy laws offer viable solutions for getting back on track. Whether you choose Chapter 7 or Chapter 13, understanding the processes and requirements can empower you to make informed decisions. Consult with an experienced bankruptcy attorney to discover the best route for your financial situation and take the first steps toward financial freedom.