Individuals and families who are looking to file bankruptcy in Maryland most likely have heard a number of myths, horror stories, and other misconceptions of Chapter 7 bankruptcy. While it is true that some individuals experience difficulties when filing for bankruptcy, nearly 99% of individuals go through the bankruptcy process without a hitch.
Exemptions in Maryland
The first and probably the biggest misconception is what you are allowed to keep in a bankruptcy. Many think that by filing for a Chapter 7, you immediately lose any and all assets that you have acquired throughout your life time. Bankruptcy law has mandated for certain amount of allowed exemptions which lets those filing for bankruptcy to keep some property. Every state has different exemptions, and some even allow debtors to choose between state or federal exemptions laws. In Maryland there is no option to choose between the different types of exemptions. Debtors are confined to the exemption laws provided by the state.
The type of property you are able to keep in Maryland includes:
- Homestead exemption: A primary residence up to $21,625 in value is exempt.
- Wages: 75% is exempt. (This does not include taxes.)
- Cash or other types of personal property: $6,000
- Group limit of clothing, books, tools, or appliances for your home: Up to $5,000.
- Pension and Retirement Funds - 100% of the following:
- Federal civil service retirement benefits
- State employees’ pensions
- Foreign Service employees’ pensions
- Medal of Honor pension exemption (for those that qualify in the Army, Navy, Air Force, or Coast Guard)
- Veterans Administration benefits
- Railroad employees’ retirement and disability annuities
- Benefits – 100% of the following:
- Fraternal Benefit Society benefits
- Unemployment insurance benefits
- Worker's compensation
- State employees’ pension benefits
- FEMA benefits
- ERISA benefits
- Social Security benefits
- Public safety officers' death benefits
- 100% of other assets exempt from bankruptcy:
- Child support payments
- Seamen's clothes
- Burial lots
- Specific partnership property (100% of partner's interest)
- Criminal injuries compensation awards
There are a number of exemptions Maryland resident may also qualify for. These exemptions can change from year to year in both type and the amount exempt. It is important to talk to a bankruptcy attorney about what specific exemptions would apply to your financial situation.
You can Keep the House, But Do you Qualify?
Now you know that you will be able to start your life over after filing bankruptcy while keeping some of your property, the next step is to find out if you qualify. In 2005, Congress passed the Bankruptcy Reform and Protection Act, requiring all debtors to pass one of two requirements. The first is the median income level. To qualify for bankruptcy, Chapter 7, debtors must fall at or below the average income for the state they reside in. The current income levels are based on family size and are as follows:
- Single individual: $55,774
- Two individuals: $74,493
- Three individuals: $87,152
- Four individuals: $103,361
- More than four individuals: All filers must add $7,500 to their average income level per family member.
If you exceed this amount, you still may qualify for a Chapter 7 bankruptcy. Your bankruptcy attorney will help you determine if a Chapter 7 bankruptcy is right for you with the means test. This test is a mathematical process that uses your financial information to prove that bankruptcy is the best option for you based on your circumstances. You may be required to provide extra financial information in order to pass the means test.
Going Through a Chapter 7 Bankruptcy
Any kind of bankruptcy, Chapter 7 or otherwise can be somewhat of a complex process. While any debtor is allowed to file on their own, through a pro se filing, it is strongly recommended by the bankruptcy court that debtors use the counsel of a bankruptcy attorney. An attorney will not only be up-to-date on the current exemption laws and the median income levels for Maryland, she/he will also know when and how to file your petition and any additional documents needed for a Chapter 7 bankruptcy. Without a bankruptcy attorney, you could run the risk of unintentional bankruptcy fraud, or an accidental case dismissal.
Your attorney will ask you to bring the following information to your initial meeting:
- Last six months of pay stubs for you and your spouse
- Last filed tax return
- A complete list of creditors along with contact information
From this information he will create your petition, which is the set of financial documents approximately 45-60 pages that is filed with the bankruptcy court. Along with your petition your attorney will ask you to take two debtor’s education courses, one before you file, and one right after your bankruptcy hearing. These courses are required by law, but they are short and easy to accomplish. They last about 90 minutes and can be done over the phone or on the Internet.
About 10 days after you file, the court along with your attorney will notify you of a bankruptcy hearing. You, your spouse if filing jointly, and your attorney will be required to attend. The hearing is usually short, lasting only a several minutes. During the hearing a Trustee who acts as a representative of your creditors may ask you a few questions. A judge will preside over your hearing, and make a final determination if Chapter 7 bankruptcy is the best option based on your financial situation. You should receive a discharge approximately 90 days after your hearing.
Many Maryland residents have taken the next step and filed for bankruptcy. Once you understand the truth behind a Chapter 7 bankruptcy, you can discover the hope you can have once you start over without any debt.
Maryland Bankruptcy Courts
Edward A. Garmatz Federal Building and
United States Courthouse
101 West Lombard Street, Suite 8530
Baltimore, Maryland 21201-2605
Phone: (410) 962-2688
Greenbelt, Maryland Bankruptcy Court
United States Courthouse
6500 Cherrywood, Maryland 20770
Phone: (301) 344-8018