Maryland Bankruptcy Law: What You Need to Know

Maryland bankruptcy law is designed to help individuals and businesses regain their financial footing by providing them with options to manage or eliminate their debts. Understanding the intricacies of this legal framework is essential for anyone considering bankruptcy in the state.

There are two main types of bankruptcy that individuals in Maryland can file for: Chapter 7 and Chapter 13. Chapter 7 bankruptcies are known as liquidations, while Chapter 13 is recognized as a reorganization bankruptcy. Each of these types serves different financial situations and can have varying impacts on credit and assets.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy is designed for individuals who have little to no disposable income to repay their debts. This process allows debtors to discharge most unsecured debts, such as credit card debts and personal loans. However, certain assets may be liquidated to pay creditors, although Maryland provides exemptions to protect specific types of property, including a portion of equity in your home and personal belongings.

Chapter 13 Bankruptcy

In contrast, Chapter 13 bankruptcy allows individuals with a regular income to create a repayment plan to pay back all or a portion of their debts over three to five years. This option is ideal for individuals who want to keep their property and have the ability to make monthly payments based on their income. One key benefit of Chapter 13 is that it can help individuals avoid foreclosure and catch up on missed mortgage payments.

Eligibility Requirements

To qualify for bankruptcy under either chapter, individuals must meet specific eligibility criteria. Chapter 7 requires passing a means test that compares your income to the median income for a similar household in Maryland. If your income is below this threshold, you may qualify. Chapter 13 eligibility is contingent on having a regular income and debt limits—unsecured debts must be below a certain cap (currently $465,275), and secured debts must be under another limit (currently $1,395,875).

Filing Process

The filing process for bankruptcy involves several steps. First, individuals must complete mandatory credit counseling within six months before filing. Next, they must gather financial documentation, including income statements, tax returns, and a list of debts and assets. After preparing the necessary forms, you can file your petition in the U.S. Bankruptcy Court for the district where you reside.

Once filed, an automatic stay goes into effect, halting all collection activities by creditors. This provides immediate relief and a breathing space to work through the bankruptcy process.

Impact on Credit

Filing for bankruptcy will have a significant effect on your credit score. A Chapter 7 bankruptcy will remain on your credit report for up to ten years, while a Chapter 13 can stay for seven years. However, many individuals find that their credit scores improve within a few years after filing, especially if they take steps to rebuild their credit through responsible financial behavior.

Conclusion

Understanding Maryland bankruptcy law is essential for anyone contemplating this option to resolve financial difficulties. Whether you choose Chapter 7 or Chapter 13, it's vital to consult with a qualified bankruptcy attorney who can guide you through the process, help you understand your rights, and work towards a fresh start financially. Taking the right steps in navigating bankruptcy can pave the way for a more secure financial future.