Maryland’s New Bankruptcy Homestead Exemption: What It Could Mean for Your Home

May 25, 2026 | Read Time: 7 minutes

If you are thinking about filing bankruptcy in Maryland, you may be asking one very important question: Will I be able to keep my home? That concern is completely understandable. For many people, a home is not just property. It is where their family lives, where they feel secure, and often their biggest financial asset.

That is why Maryland’s new bankruptcy homestead exemption law matters. Beginning June 1, 2026, Maryland increases the homestead exemption for many bankruptcy filers to $125,000 and extends protection to certain owner-occupied homes held in revocable trusts.

Below, we explain what the homestead exemption is, what changed under Maryland law, who may qualify, and how the new rules can affect Chapter 7 and Chapter 13 bankruptcy cases.

What Is a Homestead Exemption?

A homestead exemption protects some of the equity in your primary residence during bankruptcy. Equity is the difference between what your home is worth and what you still owe on your mortgage.

For example:

• Home value: $400,000
• Mortgage balance: $250,000
• Equity: $150,000

The homestead exemption protects some or all of the equity in your house from creditors. In many bankruptcy cases, that protection can determine whether you keep your home.

The idea behind this protection is straightforward: bankruptcy is meant to give people a chance to reset and move forward. If someone loses everything in the process, rebuilding becomes much harder. Homestead protections can help families keep some stability while working through debt.

Maryland’s Old Bankruptcy Homestead Exemption

For years, Maryland had one of the weakest homestead protections in the country. Unlike many states that allowed homeowners to protect large amounts of home equity, Maryland tied its bankruptcy homestead exemption to the federal exemption system.

Before this change, Maryland homeowners could generally protect only $31,575 of home equity in bankruptcy for cases filed during the current federal adjustment period.

That amount often was not enough to protect homeowners in today’s housing market. As home prices rose, many Maryland homeowners found themselves with more equity than the exemption could protect. This meant many people had to pay back their debts in Chapter 13 to protect their house.  Since a Chapter 13 only gives you 5 years to deal with your debts, this left  some people with a payment plan they really couldn’t afford.

What Changed Under Maryland’s New Law?

Maryland’s new law makes several important changes for homeowners filing bankruptcy. For cases filed on or after June 1, 2026, the homestead exemption increases from $31,575 to $125,000 for owner-occupied residential real property.

The updated law also specifically includes certain homes held in revocable trusts, which matters for homeowners who transferred their residence into a living trust as part of estate planning.

In short, the law brings Maryland closer to current home values and gives more homeowners a realistic chance to protect the equity they have built.  These changes may significantly improve outcomes for Maryland homeowners facing financial hardship.  However, you can only claim this exemption can only be claimed if it hasn’t been used in 8 years.

Why the New Exemption Matters

The new homestead exemption matters because home equity has become one of the largest assets many families own.

In the past, some homeowners delayed filing bankruptcy because they feared losing their homes. Others were forced into Chapter 13 repayment plans because Chapter 7 liquidation carried too much risk.

With stronger homestead protections, more Maryland residents may now be able to:

• Keep their homes during bankruptcy
• Protect years of accumulated equity
• Eliminate unsecured debt more safely
• Recover financially without starting over from scratch

For many families, that can make an already stressful situation feel a little more manageable.

How the Homestead Exemption Works in Chapter 7 Bankruptcy

To understand why the exemption is important, it helps to understand how Chapter 7 bankruptcy works.

In a Chapter 7 case, a bankruptcy trustee reviews your assets. If you own property worth more than the available exemptions, the trustee may have the right to sell that property and use the proceeds to pay creditors.

However, exempt property is protected.

Here is a simplified example:

Example 1: Fully Protected Equity

• Home value: $350,000
• Mortgage balance: $250,000
• Equity: $100,000
• Homestead exemption: $125,000

In this situation, all $100,000 of equity may be protected because the exemption covers the full amount.

Example 2: Partially Protected Equity

• Home value: $500,000
• Mortgage balance: $300,000
• Equity: $200,000
• Homestead exemption: $125,000

Here, only part of the equity is protected. The Chapter 7 Trustee can sell the house and use the nonexempt equity to distribute among the creditors. This is why Chapter 7 is called a liquidation bankruptcy.

The trustee may evaluate whether selling the property would benefit creditors after paying the exemption amount, mortgage, costs of sale, and other expenses.  But if there would be enough proceeds the Trustee has an obligation to recover this money for the creditors.

Because every bankruptcy case is different, it helps to speak with a bankruptcy lawyer before filing so you understand your options and avoid surprises.

How the Exemption Works in Chapter 13 Bankruptcy

The homestead exemption also matters in Chapter 13 bankruptcy.

In Chapter 13, you usually keep your property while making payments through a repayment plan. However, the amount of non-exempt equity you own can affect how much you must repay creditors over time.

A larger homestead exemption may reduce the amount you are required to pay unsecured creditors in a Chapter 13 plan.

That can make monthly payments more affordable and increase the chances of successfully completing the bankruptcy case.

Does the New Law Mean Everyone Can Keep Their House?

Not necessarily.

The homestead exemption protects equity, but several other factors still matter.

For example:

1. Mortgage Payments Must Still Be Made

Bankruptcy does not erase your mortgage lien. If you want to keep your house, you generally must continue making mortgage payments unless another arrangement is approved.

2. Tax Liens and Other Secured Debts May Still Apply

Certain liens survive bankruptcy and may affect your property rights.

3. High Equity Cases Can Still Be Complicated

If your equity exceeds the exemption amount, additional planning may be needed.

4. Timing Matters

Transfers of property, refinancing, recent home purchases, and other financial transactions can affect exemption rights.

Because bankruptcy law can be complicated, it is best not to make assumptions about whether your home is fully protected until someone reviews the details of your situation.

Who Qualifies for the Maryland Homestead Exemption?

In general, the exemption applies to a debtor’s primary residence. That means the property must be the home where you live.

The new legislation specifically expanded protections for some homes owned through revocable living trusts. That change is important because many homeowners place their homes into trusts as part of estate planning.

Married Couples and Joint Filers

For married couples, the analysis can be a little more involved, but the right approach may offer important protections.

Married couples should be especially careful. Although joint ownership and tenancy by the entirety can offer important protections in some cases, the homestead exemption itself does not automatically double just because spouses file together.

Because the best strategy depends on title, debt structure, and filing choices, married homeowners should have their case reviewed before filing.

However, these rules are complex. The best strategy often depends on:

• Whether one spouse or both spouses are filing
• How the home is titled
• Whether debts are joint or individual
• The amount of home equity

A bankruptcy lawyer can look at these issues with you before filing and help you choose the approach that makes the most sense.

Why Maryland Changed the Law

Supporters of the legislation argued that Maryland homeowners needed stronger protections because the old exemption no longer reflected economic reality.

Legislative testimony pointed out that Maryland ranked poorly compared to many other states when it came to bankruptcy exemptions.

As home prices increased, many middle-class homeowners accumulated equity that exceeded the old exemption amount even though they were not wealthy.

Advocates believed stronger protections would:

• Help families stay in their homes
• Reduce financial instability
• Allow people to recover from debt problems more effectively
• Modernize Maryland’s bankruptcy system

The law reflects a growing trend across the country toward expanding homestead protections.

Common Myths About Bankruptcy and Homes

Myth #1: Filing Bankruptcy Always Means Losing Your House

This is one of the biggest misconceptions about bankruptcy.

In reality, many people who file bankruptcy keep their homes. Stronger exemptions make that even more likely in many cases.

Myth #2: You Must Be Behind on Your Mortgage to File

You do not need to miss mortgage payments before filing bankruptcy.

In fact, many people file while still current on their mortgage.

Myth #3: Bankruptcy Permanently Ruins Your Financial Future

Bankruptcy can help many people rebuild their finances by eliminating overwhelming debt and creating a path toward recovery.

Many people begin improving their credit shortly after receiving a discharge.  Their credit score can even bounce back in just a couple of years.  See our post How Long Does a Bankruptcy Affect Your Credit?

Bankruptcy Planning Is More Important Than Ever

Even with stronger homestead protections, good bankruptcy planning still matters.

A bankruptcy attorney may help you:

• Determine whether Chapter 7 or Chapter 13 is better
• Calculate home equity accurately
• Analyze exemption eligibility
• Review property titles and liens
• Avoid costly mistakes before filing

Small mistakes can create unnecessary issues in a bankruptcy case, which is why guidance early on can be so helpful.

For example, transferring property before filing or using incorrect valuations can lead to disputes with trustees or creditors.

Getting advice early can give you more clarity and, in some cases, more options.

What Homeowners Should Do Before Filing Bankruptcy

If you own a home and are thinking about bankruptcy, here are a few practical steps to take before making any decisions:

Gather Financial Information

Collect documents related to:

• Mortgage balances
• Property taxes
• Homeowners insurance
• Home valuations (Free online valuation like Zillow or a Real Estate Agent Comparative Market Analysis)
• Credit card debt
• Lawsuits or judgments

Avoid Transferring Property

Do not transfer ownership of your home to family members or friends without speaking to an attorney first.

Do Not Assume Online Information Applies to Your Case

Online information can be helpful as a starting point, but bankruptcy law is detailed, and general advice may not fit your specific situation.

Schedule a Consultation with a Bankruptcy Lawyer

A consultation can help you understand:

• Whether your home is protected
• Which chapter may be best
• What risks exist in your case
• How Maryland’s new exemption law applies to you

The Bottom Line

Maryland’s new bankruptcy homestead exemption is an important change for homeowners. For many people, it may provide better protection for home equity and make the path to debt relief feel less risky.

At the same time, the law does not automatically protect every home in every case. Things like equity, liens, income, recent transfers, and the type of bankruptcy you file still matter.

If you are considering Chapter 7 or Chapter 13 bankruptcy in Maryland, getting legal advice before filing can help you understand what is protected and what options may be available to you.

For more on the other bankruptcy exemptions see our post What Are Maryland’s Bankruptcy Exemptions?

A Maryland bankruptcy lawyer can review your home value, mortgage balance, title, and debts and help you understand the best next step.