What You Should Know About Bankruptcy In Maryland And What Is The Alternative
As of 2021, the total outstanding debt of Maryland was approximately $12.5 billion, according to the Maryland State Treasurer’s office. This debt is composed of general obligation bonds, revenue bonds, and lease obligations. In terms of per capita debt, Maryland’s debt load ranks in the middle among U.S. states. As of 2021, the per capita debt for Maryland residents was approximately $2,060, which is slightly lower than the national average. As of 2021, Maryland had a bankruptcy filing rate of 2.6 per 1,000 residents, according to data from the U.S. Courts. This ranked Maryland as having the 18th highest bankruptcy filing rate among U.S. states. In terms of the types of bankruptcy filings in Maryland, the majority were Chapter 7 filings, which accounted for 70.8% of all bankruptcies filed in the state. Chapter 13 filings made up 28.1% of bankruptcies, while Chapter 11 and Chapter 12 filings accounted for less than 1% of bankruptcies each.
Bankruptcy Laws in Maryland
Bankruptcy laws in Maryland are primarily governed by federal law under the United States Bankruptcy Code. However, there are certain state-specific provisions that may affect bankruptcy proceedings in Maryland.
Here are some key aspects of bankruptcy laws in Maryland:
- Eligibility: In order to file for bankruptcy in Maryland, an individual must meet certain eligibility requirements. For example, in order to file for Chapter 7 bankruptcy, the individual must pass a means test, which compares their income to the median income for their state.
- Exemptions: Maryland has its own set of exemptions that determine which assets a debtor can keep in bankruptcy. These exemptions include homestead exemptions, which protect a certain amount of equity in a debtor’s primary residence, and personal property exemptions, which protect certain items of personal property, such as clothing, furniture, and vehicles.
- Chapter 7 bankruptcy: This type of bankruptcy allows individuals to discharge most types of unsecured debts, such as credit card debt and medical bills, while potentially losing some non-exempt assets. However, certain types of debts, such as student loans and taxes, cannot be discharged in Chapter 7 bankruptcy.
- Chapter 13 bankruptcy: This type of bankruptcy involves creating a repayment plan to pay back creditors over a period of three to five years. The debtor gets to keep their property and pays back some or all of their debts over time.
- Automatic stay: Filing for bankruptcy triggers an automatic stay, which immediately stops most creditor collection activities, including foreclosure and wage garnishment.
- Bankruptcy court: Bankruptcy cases in Maryland are heard in the U.S. Bankruptcy Court for the District of Maryland, which has locations in Baltimore and Greenbelt.
What Types of Bankruptcy Are There For You Personally and For Your Business?
There are different types of bankruptcy for individuals and businesses. Here are some of the most common types:
For individuals:
- Chapter 7 bankruptcy: This is the most common type of bankruptcy for individuals. It is also known as “liquidation” bankruptcy because it involves selling some of the debtor’s assets to pay off creditors. Chapter 7 bankruptcy typically lasts a few months and discharges most unsecured debts, such as credit card debt and medical bills.
- Chapter 13 bankruptcy: This type of bankruptcy involves creating a repayment plan to pay back creditors over a period of three to five years. The debtor gets to keep their property and pays back some or all of their debts over time.
- Chapter 11 bankruptcy: While Chapter 11 is typically associated with business bankruptcies, it is also available for individuals who have high levels of debt or complex financial situations. This type of bankruptcy involves reorganizing the debtor’s finances and debts and may allow the debtor to keep their assets and continue operating their business or income-generating activities.
For businesses:
- Chapter 7 bankruptcy: This type of bankruptcy is available for businesses and is similar to Chapter 7 bankruptcy for individuals. The business’s assets are liquidated to pay off creditors, and the business ceases operations.
- Chapter 11 bankruptcy: This type of bankruptcy is commonly used by businesses that want to continue operating and reorganize their finances. It allows the business to continue operating while it creates a plan to restructure its debts and operations.
- Chapter 13 bankruptcy: While Chapter 13 is primarily used for individuals, it can also be used by certain types of small businesses. This type of bankruptcy involves creating a repayment plan to pay back creditors over a period of three to five years. The business gets to keep its assets and pays back some or all of its debts over time.
Learn More about the 3 main types of bankruptcy
Things To keep in Mind When Considering Business Bankruptcy in Maryland
If you are considering filing for business bankruptcy in Maryland, there are several things to keep in mind. Here are some key considerations:
- Evaluate your options: Before filing for bankruptcy, consider whether there are other options available to address your financial situation, such as negotiating with creditors, restructuring debt, or selling assets. Bankruptcy should be a last resort.
- Determine the appropriate type of bankruptcy: Depending on your business’s circumstances, Chapter 7 or Chapter 11 bankruptcy may be appropriate. Chapter 7 bankruptcy is typically used when a business is closing down, while Chapter 11 bankruptcy is used when a business wants to continue operating and reorganize its finances.
- Hire an experienced bankruptcy attorney: Bankruptcy can be a complex legal process, and it is important to work with an experienced bankruptcy attorney who can guide you through the process and ensure that your rights are protected.
- Understand the bankruptcy process: Familiarize yourself with the bankruptcy process, including the filing requirements, court hearings, and deadlines. Make sure you are prepared to comply with all of the necessary requirements and meet all deadlines.
- Develop a plan for reorganization: If you are filing for Chapter 11 bankruptcy, you will need to develop a plan for reorganizing your business and repaying your creditors. This plan will need to be approved by the court and your creditors.
- Be prepared for the impact on your credit: Filing for bankruptcy can have a significant impact on your credit score and ability to obtain credit in the future. Make sure you understand the potential consequences of filing for bankruptcy before you make a decision.
- Communicate with your stakeholders: If you have employees, customers, or vendors, it is important to communicate with them about your financial situation and plans for bankruptcy. This can help to minimize disruptions and maintain positive relationships.
What Debts Are Not Discharged in Bankruptcy?
While bankruptcy can help individuals and businesses discharge many types of debts, there are certain debts that are not typically discharged in bankruptcy. Here are some examples:
- Student loans: In most cases, student loans cannot be discharged in bankruptcy unless the debtor can prove that repaying the loans would cause an undue hardship.
- Tax debts: While some tax debts may be dischargeable in bankruptcy, certain types of taxes, such as recent income taxes, are generally not dischargeable.
- Child support and alimony: Debts related to child support or alimony are typically not dischargeable in bankruptcy.
- Debts arising from fraudulent or illegal activity: Debts arising from fraudulent or illegal activities, such as fines or penalties for breaking the law, are not dischargeable in bankruptcy.
- Debts owed to government agencies: Certain debts owed to government agencies, such as fines or penalties, are not dischargeable in bankruptcy.
- Debts not listed in the bankruptcy filing: If a debt is not listed in the bankruptcy filing, it may not be discharged in bankruptcy.
- Debts incurred after the bankruptcy filing: Debts incurred after the bankruptcy filing are not included in the bankruptcy discharge.
How Bankruptcy in Maryland Affects Your Credit Score and Ability to Get a Future Loan
Filing for bankruptcy in Maryland can have a significant impact on your credit score and ability to obtain credit in the future. When you file for bankruptcy, it will be reflected on your credit report for a period of seven to ten years, depending on the type of bankruptcy you file. This can make it difficult to obtain credit or loans during that time, and may result in higher interest rates if you are approved for credit. Additionally, many lenders and credit agencies view bankruptcy as a negative factor when evaluating creditworthiness, and may be less likely to approve credit or loans to individuals who have filed for bankruptcy.
How Does Bankruptcy in Maryland Affect Tax Debt?
Bankruptcy can affect tax debts in Maryland in different ways depending on the type of tax debt and the type of bankruptcy filed. Under Chapter 7 bankruptcy, most tax debts cannot be discharged. However, some older tax debts may be eligible for discharge if they meet certain criteria. Specifically, the tax debt must be at least three years old, the tax return must have been filed at least two years before the bankruptcy filing, and the tax assessment must be at least 240 days old. In addition, the debtor must not have committed any fraud or willful evasion related to the tax debt. Under Chapter 13 bankruptcy, tax debts are typically repaid over a period of three to five years as part of a court-approved repayment plan. However, interest and penalties on tax debts may be halted during the repayment period. It is important to note that bankruptcy does not necessarily discharge all tax-related obligations. For example, if you owe payroll taxes, you may still be responsible for paying those taxes even after bankruptcy. In addition, bankruptcy does not discharge tax liens, which may remain in place even after the underlying tax debt has been discharged.
Will You Lose Your Home or Car in Bankruptcy in Maryland?
The answer to whether you will lose your home or car in bankruptcy in Maryland depends on several factors, including the type of bankruptcy you file, the value of your assets, and the amount of debt you owe. Under Chapter 7 bankruptcy, also known as liquidation bankruptcy, the trustee may sell certain assets in order to pay off your creditors. However, Maryland law provides exemptions that allow you to protect certain types of property, such as your home, car, and personal property, up to a certain dollar amount. If the value of your assets exceeds the allowed exemptions, you may be required to surrender some assets to the trustee for liquidation. Under Chapter 13 bankruptcy, also known as reorganization bankruptcy, you can keep your assets while repaying your debts over a period of three to five years. As long as you can make your payments under the court-approved repayment plan, you can keep your home and car.
Statute Of Limitations For Collections in Maryland
In Maryland, the statute of limitations for collections on most types of debts is three years. This means that a creditor must file a lawsuit against you within three years of the date the debt became delinquent or the last payment was made, whichever is later. It is important to note that there are exceptions to the three-year statute of limitations. For example, the statute of limitations for a written contract, such as a credit card agreement, is twelve years in Maryland. In addition, the statute of limitations may be tolled, or paused, in certain circumstances, such as if the debtor is out of the state or is in bankruptcy. If a creditor files a lawsuit against you after the statute of limitations has expired, you may be able to use the statute of limitations as a defense. However, if you make a payment on the debt or otherwise acknowledge the debt after the statute of limitations has expired, the clock may restart and the creditor may be able to collect on the debt.
Cons of Bankruptcy in Maryland
While bankruptcy can be a powerful tool for addressing overwhelming debt, there are also potential cons and drawbacks to consider before filing for bankruptcy in Maryland. Some of these cons include:
- Impact on credit score: Filing for bankruptcy can have a significant negative impact on your credit score, and the bankruptcy will remain on your credit report for several years. This can make it difficult to obtain credit or loans in the future, and may result in higher interest rates if you are approved for credit.
- Cost: Filing for bankruptcy can be expensive, as you will need to pay filing fees and attorney fees. In addition, if you file for Chapter 13 bankruptcy, you will be required to repay a portion of your debts over a period of several years.
- Public record: Bankruptcy filings are public record, which means that your personal financial information will be available to the public. This can be a concern for some individuals who value their privacy.
- Loss of assets: Depending on the type of bankruptcy you file and the value of your assets, you may be required to surrender certain assets to the bankruptcy trustee for liquidation. This could include your home or car, depending on the value and the amount of equity you have in these assets.
- Stigma: Despite the fact that bankruptcy is a legal process designed to provide relief to individuals who are struggling with debt, there can still be a social stigma associated with filing for bankruptcy. This can be a concern for some individuals who worry about how bankruptcy will be perceived by others.
Compare the Pros and Cons of Bankruptcy: Pros and Cons of Filing Bankruptcy
Why People Regret Filing bankruptcy:
While bankruptcy can be a powerful tool for addressing overwhelming debt, some people may end up regretting their decision to file for bankruptcy. Here are a few reasons why this can happen:
- Impact on credit score: As mentioned earlier, filing for bankruptcy can have a significant negative impact on your credit score. This can make it difficult to obtain credit or loans in the future, and may result in higher interest rates if you are approved for credit.
- Loss of assets: Depending on the type of bankruptcy you file and the value of your assets, you may be required to surrender certain assets to the bankruptcy trustee for liquidation. This could include your home or car, depending on the value and the amount of equity you have in these assets.
- Long-term consequences: While bankruptcy can provide relief from overwhelming debt, it is not a quick fix, and the effects of bankruptcy can last for several years. For example, a Chapter 7 bankruptcy filing will remain on your credit report for up to ten years, while a Chapter 13 bankruptcy filing will remain on your credit report for up to seven years.
- Stigma: Despite the fact that bankruptcy is a legal process designed to provide relief to individuals who are struggling with debt, there can still be a social stigma associated with filing for bankruptcy. This can be a concern for some individuals who worry about how bankruptcy will be perceived by others.
- Unforeseen circumstances: Even after filing for bankruptcy, unexpected circumstances, such as a job loss or a medical emergency, can occur, leading to additional financial struggles. In some cases, individuals may regret filing for bankruptcy if they are not able to keep up with their post-bankruptcy obligations.
What Are The Alternatives To Bankruptcy?
If you do not qualify for bankruptcy in Maryland, there may be other options available to you to help address your debt issues. One of which is debt settlement. Debt settlement involves negotiating with creditors to settle debts for less than the full amount owed.
There are some potential benefits to debt settlement over bankruptcy that may make it a more favorable option for some individuals.
- No BK on your credit report: Filing for bankruptcy shows on your credit report for up to 10 years. On the other hand, debt settlement does not show as a bankruptcy.
- Cost: Filing for bankruptcy can be expensive, with filing fees, attorney fees, and other costs adding up quickly.
- Emotional Impact: People report horror stories of the negative emotional impact of BK.
- With a bankruptcy for the rest of their life: Employers or lenders can ask if someone has filed BK for the rest of their life. It is much less likely to be asked if one ever used debt settlement to pay back an agreed to amount.
- Control: With debt settlement, you may have more control over the process and negotiations with your creditors, whereas with bankruptcy, a court will make the final decision.
- Less severe consequences: Filing for bankruptcy can have significant consequences, such as the liquidation of your assets, whereas debt settlement may allow you to negotiate a more manageable repayment plan while keeping your assets.
Bankruptcy vs. Debt Relief: What’s Right For You and How We May Be Able To Help
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