The Differences Between Chapter 7 and Chapter 13 Bankruptcy in Maryland

When considering bankruptcy options in Maryland, individuals often grapple with the differences between Chapter 7 and Chapter 13 bankruptcy. Understanding the distinctions can significantly impact one's financial future and decision-making process.

Chapter 7 Bankruptcy Overview

Chapter 7 bankruptcy, often referred to as "liquidation bankruptcy," is designed to eliminate most unsecured debts, such as credit card debt and medical bills. In Maryland, eligible individuals can discharge these debts, allowing them to start fresh financially. However, certain assets may be sold to repay creditors under this chapter, although Maryland has exemption laws that allow individuals to protect some assets.

Eligibility Requirements for Chapter 7

To qualify for Chapter 7 bankruptcy in Maryland, individuals must pass a "means test." This test compares monthly income to the median income for households of similar size in Maryland. If their income is below the median, they can typically file for Chapter 7. If above, they may have to consider Chapter 13 bankruptcy.

Chapter 13 Bankruptcy Overview

In contrast, Chapter 13 bankruptcy, often known as "reorganization bankruptcy," involves creating a repayment plan to pay off a portion or all of one's debts over three to five years. This type of bankruptcy is ideal for individuals who have a regular income and wish to keep their assets while repaying creditors.

Eligibility Requirements for Chapter 13

Individuals may qualify for Chapter 13 bankruptcy if they have a regular income and their unsecured debts are less than $465,275, while secured debts must be below $1,395,875. No means test is required for Chapter 13, making it accessible for those who don’t qualify for Chapter 7.

Key Differences Between Chapter 7 and Chapter 13

1. Debt Discharge: Chapter 7 focuses on the complete discharge of unsecured debts, while Chapter 13 allows for the repayment of debts over time.

2. Asset Retention: In Chapter 7, some assets may be liquidated, whereas Chapter 13 helps individuals retain their assets through a structured repayment plan.

3. Duration: Chapter 7 proceedings are typically resolved within a few months, whereas Chapter 13 involves a repayment plan that lasts three to five years.

4. Impact on Credit: Both types of bankruptcy will impact credit scores, but Chapter 7 remains on a credit report for ten years, while Chapter 13 remains for seven years.

Conclusion

The decision between Chapter 7 and Chapter 13 bankruptcy in Maryland hinges on one’s financial situation, income, and asset retention needs. It's essential to consult a qualified bankruptcy attorney to navigate these options effectively and make an informed choice tailored to individual circumstances.