Individuals and small businesses may face financial hardships from time to time. When it gets to the point when you can no longer sustain without some type of relief, Chapter 7 Bankruptcy may be a viable option for fast release from financial obligations.
What Is Chapter 7?
Chapter 7 bankruptcy releases individuals and small businesses from financial obligations by liquidating assets to pay off debts. In Maryland, this process usually takes just three to four months, and may be ideal for individuals with fewer assets.
Once you file for Chapter 7, an automatic stay goes into effect and your creditors may only contact you through your Chapter 7 or small business bankruptcy attorney. The stay also stops creditors from filing lawsuits against you, from seizing your property, and from taking additional collection actions.
A bankruptcy trustee is appointed to your estate by the courts. The trustee is responsible for evaluating your assets, overseeing their liquidation, and then the distribution of the proceeds to settle your debts. Once the proceeds are divided among your creditors, your remailing qualified debts are discharged, giving you a clean slate to start over.
How Do I Qualify For Chapter 7?
An experienced bankruptcy law attorney can help you evaluate if filing for bankruptcy is the right decision for your unique case. To qualify for Chapter 7, you will need to take the bankruptcy means test to determine your eligibility.
If your current monthly income is less than the median income for a household of your size, in your state, then you will qualify for Chapter 7. The 2021 Maryland median annual income for a household size of four is $131,859. If you make more than the median income then the means test uses a calculation, based on your income, monthly expenses, and disposable income, to determine further eligibility. Just as the median income levels vary by state and household size, the allowable amount for monthly expenses used in this calculation varies by state, county, and region.
If you pass the bankruptcy means test, your first step is to complete the Maryland Credit Counseling Course. Topics covered in this course include budgeting, how to responsibly utilize credit, and a review of debt relief options, including bankruptcy.
What Happens To My Debt Under Chapter 7?
Filing bankruptcy can erase many bills, such as:
- credit card balances,
- past due utility payments,
- medical bills, and
- personal loans.
In many states, including Maryland, some debts cannot be discharged, such as outstanding payments owed for:
- family support,
- personal injury or death caused by driving while intoxicated,
- student loans,
- penalties owed for criminal activities, and
- certain taxes.
When you file Chapter 7, the bankruptcy trustee assigned to your case is responsible to see that these non-dischargeable debts are paid first.
Depending on your type of debt and value of assets, Chapter 7 bankruptcy may not always be the answer to your financial troubles. A knowledgeable bankruptcy attorney can assess your specific financial situation during a complimentary case evaluation to make recommendations if Chapter 7 is the correct solution for you.
Will I Lose My Assets Under Chapter 7?
Chapter 7 was designed to help you get back on your feet. In some cases, it is possible to keep your home and other possessions, such as your car, furniture in the home, and professional tools. The trustee assigned to your case will make the recommendation to the court whether these properties are valuable for “liquidation of the debtor’s assets” to settle your accounts.
For residents who have resided within the state of Maryland for at least two years, there are several state specific bankruptcy exemptions to help the property holder retain ownership:
- Maryland Homestead—As of April 1, 2019, homes with equity less than $25,150 can be claimed by exemption (this threshold is updated every three years).
- Tools of the Trade—Up to a $5,000 value, personal property that is required for the debtor’s trade or profession is exempt; these can include tools, instruments, and apparel.
- Health Aids—Prescribed by a physician, these aids are protected at any value.
- Household Goods and Furnishings—Up to a $1,000 value are exempt, including appliances, books, clothes, and pets.
- Wildcard—Up to $6,000 in value, this exemption can protect cash and private property. An additional $5,000 can be exempted for personal property of any kind.
In Maryland you must sign a voluntary Reaffirmation Agreement for property you wish to keep and remain financially responsible for. By reaffirming your debt, you are making the assertion that you will continue to make payments for the property specified, just as was expected of you prior to filing bankruptcy. If you are past due on payments, you must pay the overdue payments to bring the account current before reaffirming your debt. A bankruptcy law attorney will be able to help you navigate the system and retain your property when possible.
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Former Chapter 7 Trustee