Maryland bankruptcy laws: What are the Laws Regarding Bankruptcies in the State of Maryland
You often feel a chill running down your spine when you hear the word ‘bankruptcy.’ It is a misconception that bankruptcy is the end of the downfall of an individual or business. Bankruptcy is a legal process which gives a fresh start to those individuals or businesses who are unable to pay the debts out of the current assets. It is the legal process of liquidating a property or business owned by the individual or to repay the creditors.
Maryland bankruptcy law
Maryland follows the federal bankruptcy law and a few state laws that affect the residents of Maryland. The debtor is required to undergo credit counseling at least six months before filing for bankruptcy unless there are exigent circumstances. A financial management instructional course has to be completed post filing for bankruptcy. Maryland bankruptcy law protects both an individual and business and creditors.
An individual or business, meaning the debtor can use either file under Chapter 7 or Chapter 13 of the bankruptcy law. This is determined by analyzing the debtor’s assets, income, and financial standing. This analysis is called a means test. Under means test, the debtor’s present income or the average income of the last 180 days is compared to the median income in the state of Maryland. Debtors below the state median income can file for bankruptcy under Chapter 7. Debtors who are above the state median income who file a Chapter 7 petition may face dismissal or be asked to convert to Chapter 13 bankruptcy.
Chapter 7 bankruptcy in Maryland
Under Chapter 7 bankruptcy, a trustee is assigned to liquidate all the property owned by the debtor, unless exempt under the Maryland exemption law. The amount received is distributed to the creditors and the debtors to ‘start fresh.’ There is usually little or non-exempt property in Chapter 7 cases, and hence there may not be an actual liquidation of debtor assets. This is called a no-asset case. A creditor holding an unsecured claim has to file a proof of claim with the bankruptcy court and will be paid only if it is an asset case.
Chapter 13 bankruptcy in Maryland
Under Chapter 13 Bankruptcy, the debtor is entitled to ‘Adjustments of debts’ if he/she has a regular income. Chapter 13 enables a debtor to keep a valuable asset as it allows the debtor to repay the creditors over time. A repayment plan is framed, and an agreement is signed by the debtor, promising to pay the creditors with future income. The court approves or disapproves the repayment plan, at a court hearing. The approval depends on whether the plan meets the Bankruptcy Code's requirements.
In Chapter 13, the debtor has the property and makes payment to the creditors via trustees, based on the debtor’s projected income over the years. Unlike Chapter 7, the debtor receives a discharge of debts only after the complete payment to the creditors. While the payment agreement is in effect, the debtor is protected from garnishments, lawsuits, and other creditor actions.
Maryland bankruptcy exemptions
A debtor can keep certain assets or properties even after filing for bankruptcy. These property or asset is called ‘Exempt.’ If the debtor wishes to keep a non-exempt property, he/she has to pay the trustee, the value of the non-exempt property. Under subsection 522(b)(3)(A) of the Bankruptcy Code, the debtor must have resided in the state for at least two years to claim Maryland exemptions. If the debtor was a resident of Maryland for at least 180 days, two years before the filing the petition, he/she is eligible to claim the exemption in Maryland.