There are some unfortunate preconceived notions about bankruptcy. But the truth of the matter is that many more individuals and couples file for bankruptcy than most people realize. Especially in today’s trying times, filing for bankruptcy can provide a much-needed financial lifeline to individuals and couples who are struggling to pay their bills month-to-month.
If bankruptcy were just for people who wanted to get out of paying what they owe, then the bankruptcy laws we have today would not exist.
In fact, the law would be much different. The laws we have today are designed specifically to help people who have come upon financial hardships unexpectedly. Sometimes people simply need a little bit of help to regain their financial footing.
Which Type of Bankruptcy Should I File?
When it comes to filing for bankruptcy, most people have two primary options: (i) they can file under Chapter 7, or (ii) they can file under Chapter 13.
Which option makes the most sense for you depends on your personal financial circumstances. The specific types of debts that you are struggling to pay are a particularly important consideration.
When you schedule a consultation at Andrews, Bongar, Gormley & Clagett, one of our bankruptcy attorneys in Waldorf or Lexington Park will work with you one on one to help you decide whether to file under Chapter 7 or Chapter 13.
Once you make this decision, we will take the lead for the entire bankruptcy process, including
- Helping you collect necessary financial documents;
- Advising you on compliance with all bankruptcy requirements;
- Preparing all the necessary paperwork on your behalf;
- Developing a strategy that minimizes the bankruptcy’s negative effects; and
- Representing you in court.
Our goal is to help you make informed decisions with your long-term best interests in mind.
Filing for Chapter 7 Bankruptcy
Chapter 7 bankruptcy is a good option for individuals and couples who are plagued by debt and who truly need a fresh start. When you successfully file for bankruptcy under Chapter 7, it will wipe out your unsecured debts entirely.
You must continue to make payments on your secured debts (e.g., your car loan and mortgage). However, this means in many situations you will get to keep your car and your home despite filing for bankruptcy.
Since a Chapter 7 bankruptcy results in unsecured creditors not getting paid, this option is not available to everyone. To qualify for a Chapter 7 bankruptcy, you must not:
- Earn above Maryland’s median income (unless you pass the “means test”);
- Have had your debts discharged in a Chapter 7 bankruptcy within the past eight years;
- Have reorganized your debts in a Chapter 13 bankruptcy within the past six years; or
- Have had a Chapter 7 or Chapter 13 bankruptcy petition dismissed within the past 180 days for certain specific reasons.
Additionally, there must not be evidence to suggest that you have intentionally attempted to hide assets from your creditors or run up debts that you knew you could not afford to pay. For example, if you have run up credit card charges for luxury items while struggling to pay your utility bills, then it is possible that the court could deny your Chapter 7 bankruptcy petition.
At Southern Maryland Law, our Waldorf bankruptcy attorney can determine if you are eligible to file under Chapter 7. If there are any concerns about your eligibility, we can help you address them proactively. This will make it possible for you to still achieve a favorable result in the bankruptcy court.
Filing for Chapter 13 Bankruptcy
Regardless of whether you are eligible to file for bankruptcy under Chapter 7, you may also be eligible under Chapter 13. A Chapter 13 bankruptcy is known as a “payment plan” bankruptcy. It involves developing a payment plan that you can afford so that you can pay off your debts over time.
Depending on your income, you could make payments on your Chapter 13 plan for three or five years. Our Maryland Chapter 13 bankruptcy lawyers have over 30 years of experience helping individuals achieve debt relief through bankruptcy.
Debt Repayment in Chapter 13 Bankruptcy
In Chapter 13, you must pay some debts in full, but your plan can reduce others to their liquidation value. The first category of debts—secured debts—are secured by collateral. Your plan must pay secured creditors for at least the collateral’s value.
The chance to reschedule unsecured debts can mean lower payments. Repayments for certain debts, such as a home mortgage, may be paid outside the plan. You may continue to pay these debts under the original loan repayment schedule. If you are behind on your mortgage, your plan must include bringing the arrearage current to keep your home.
The second type of debt—unsecured debts—are not backed by collateral and include medical bills and credit cards. You may not have to pay unsecured debts in full so long as your plan:
- Pledges all projected “disposable income” over the plan’s term; and
- Pays unsecured creditors at least as much under the plan as they would get if you liquidate your assets under Chapter 7.
Your Maryland Chapter 13 bankruptcy lawyers will help you navigate the process.
Who Benefits from Filing Chapter 13?
The biggest advantage of Chapter 13 is that you can keep your property and bring the payments current over time. This can be a way to stop a foreclosure and save your house. The key to success, however, is continuing to make your payments on time. The Waldorf Chapter 13 lawyers at Southern Maryland Law will help you draft a plan that you can feasibly maintain.
Filing under Chapter 13 is a good option for individuals and couples facing a broad range of circumstances. Our Lexington Park bankruptcy lawyers can help you decide if this option makes sense for you.
What Debts Can Be Discharged in Bankruptcy?
Bankruptcy allows individuals to eliminate or restructure certain debts, providing financial relief. However, not all obligations qualify for discharge. Some remain the debtor’s responsibility even after filing. Below is an overview of which debts may be erased and which must still be repaid.
Debts That Can Be Discharged
The following types of debt are eligible for discharge in bankruptcy:
- Credit card balances. Unsecured credit card debt, including past-due payments, penalties, and over-limit fees, can be eliminated. However, fraudulent charges or luxury purchases made shortly before filing may not qualify.
- Medical bills. Hospital stays, doctor visits, prescription medications, and emergency treatment costs can be discharged, reducing financial strain from healthcare expenses.
- Personal loans. Unsecured loans from banks, credit unions, payday lenders, and individuals can be eliminated. However, loans secured by collateral, such as auto loans, require continued payments to retain the asset.
- Utility bills. Past-due balances for electricity, water, gas, and phone services can be discharged. Utility providers may require a security deposit before restoring service.
- Certain tax debts. Federal and state tax liabilities that meet specific legal requirements, such as being three years old and properly filed, may qualify for discharge.
A bankruptcy lawyer can help you determine precisely what debts may be eligible for discharge.
Debts That Cannot Be Discharged
Some debts cannot be eliminated in bankruptcy:
- Student loans. These remain enforceable unless the filer proves undue hardship, which requires substantial evidence of extreme financial distress.
- Child support and alimony. Court-ordered domestic support obligations must still be paid. Failure to meet these obligations can result in legal enforcement actions.
- Recent tax debts. Most tax liabilities from the past three years remain due, although older tax debts may qualify for relief under certain conditions.
- Court fines and restitution. Criminal penalties, victim restitution orders, and traffic tickets cannot be discharged and must be satisfied in full.
A bankruptcy attorney can assess your financial situation and determine which debts qualify for discharge under Maryland and federal bankruptcy laws.
Maryland Bankruptcy Exemptions: Protecting Your Assets
One major concern about filing for bankruptcy is whether it will result in losing essential property. Maryland law allows exemptions that safeguard necessary assets from liquidation, ensuring filers maintain basic living necessities.
Key Exemptions in Maryland
Maryland law allows filers to protect certain assets from liquidation:
- Homestead exemption. Maryland does not provide an automatic homestead exemption, but up to $27,900 (n home equity can be protected using the wildcard exemption if applied correctly.
- Wild Card exempton . Up to $6,000 of property of any kind.
This exemption is often used to protect the equity in a car or truck. quity in a vehicle can be protected, allowing filers to keep a car or truck if payments remain current. See our post Can You Keep Your Car When You file for Bankruptcy.
- Personal property exemption. Household goods, furniture, appliances, clothing, and personal items receive up to $5,000 in protection to ensure basic necessities are retained.
- Retirement accounts. 401(k)s, IRAs, pensions, and other qualified retirement accounts remain fully exempt, preventing the loss of long-term savings.
- Wages and benefits. Earned wages, Social Security benefits, disability payments, workers’ compensation, and unemployment benefits remain protected under Maryland law.
Maryland law does not permit the use of federal bankruptcy exemptions, so individuals must rely solely on state-specific protections. Strategic exemption planning with a bankruptcy lawyer helps maximize asset retention.
