What Happens to Your Home During Bankruptcy in Maryland?

Bankruptcy can be a daunting process, especially when it involves your home. In Maryland, understanding the implications of bankruptcy on your property is crucial. This article will explore what happens to your home during bankruptcy in Maryland, providing clarity and guidance for homeowners facing this challenging situation.

When you file for bankruptcy in Maryland, your assets—including your home—are placed into your bankruptcy estate. This means that your property is involved in the bankruptcy proceedings and may be evaluated to determine how to settle your debts. However, the specific outcome can vary depending on several factors, including the type of bankruptcy you file for. The two most common types of consumer bankruptcy are Chapter 7 and Chapter 13.

Chapter 7 Bankruptcy and Your Home

Chapter 7 bankruptcy is often referred to as a “liquidation” bankruptcy. In this process, a trustee evaluates your assets to determine which can be sold to pay off creditors. Fortunately, Maryland has homestead exemptions that can protect your home during this process. The current homestead exemption in Maryland allows you to protect up to $25,150 of equity in your primary residence.

If your home’s equity falls below this exemption amount, you can typically keep your home after filing for Chapter 7 bankruptcy. However, if you have significant equity in your home that exceeds the exemption, the trustee has the option to sell your home and use the proceeds to pay creditors. To avoid this, many homeowners will consider Chapter 13 bankruptcy as an alternative.

Chapter 13 Bankruptcy and Your Home

Chapter 13 bankruptcy is designed for individuals with a regular income who wish to reorganize their debts into a manageable repayment plan. This form of bankruptcy allows you to keep your home, provided you continue to make your mortgage payments during the repayment period, which typically lasts three to five years.

One of the significant advantages of Chapter 13 is that it offers borrowers an opportunity to catch up on missed mortgage payments while protecting a home from foreclosure. During this time, creditors can no longer pursue foreclosure proceedings, allowing homeowners a breath of relief. Additionally, if your mortgage is severely overdue, Chapter 13 can also allow you to modify the loan terms to make payments more affordable.

Risks of Losing Your Home

While bankruptcy can provide relief, it’s essential to recognize the potential risks. If you fail to keep up with your mortgage payments under Chapter 13, your lender may seek to lift the bankruptcy stay and proceed with foreclosure. Therefore, having a solid plan in place to maintain your mortgage payments is critical.

Furthermore, if you have significant non-exempt equity in a Chapter 7 filing, you may risk losing your home. It’s advisable to consult with a bankruptcy attorney to evaluate your equity and discuss the best course of action based on your financial situation.

Conclusion

Bankruptcy can significantly affect your home ownership status, but understanding the nuances of Chapter 7 and Chapter 13 bankruptcies in Maryland can help you make informed decisions. If you find yourself facing financial difficulties, reach out to a qualified bankruptcy attorney to explore your options and understand your rights regarding your home during bankruptcy proceedings.

Taking proactive steps now can help secure a brighter financial future while ensuring that your home remains a safe haven for you and your family.