Maryland’s homestead exemption

Maryland offers a homestead exemption, which protects the equity you can keep in your primary residence. As of now, Maryland allows an individual filer to exempt up to $25,150 in home equity. If you’re married and both of you file jointly, this exemption increases. If the equity in your home falls below this amount, you probably won’t have to worry about losing it during bankruptcy.

If the value of your home exceeds the exemption limit, the bankruptcy trustee might sell the property to pay off creditors. However, you could still negotiate with the trustee to keep your home if you can buy back the non-exempt equity or find another solution.

Secured debts and reaffirmation

In most Chapter 7 bankruptcies, mortgage loans count as secured debts, meaning the lender can foreclose on your house if you stop making payments. However, if you’re current on your mortgage and want to keep the property, you can negotiate a reaffirmation agreement with the lender. This process allows you to continue making payments and keep the house.

Maryland’s protections for homeowners

Maryland law provides certain protections for homeowners. If you’re facing foreclosure, the state offers mechanisms like foreclosure mediation programs that might help you keep your home by working with the lender.

If you file for Chapter 7 bankruptcy and are concerned about losing your home, you can take steps to understand your rights and make the best decision for your situation.

While bankruptcy might be your only option for overcoming a pressing financial dilemma, it is important to consider how it will affect your long-term finances as well. By understanding how Chapter 7 bankruptcy can impact interest rates pertaining to mortgages and other loans, you can better prepare yourself for the future.

Will Chapter 7 bankruptcy lead to higher interest rates?

Experts explain that the average person can lose as many as 150 points off their credit score as a result of filing for bankruptcy. This is because your credit score is an indication of your ability to reliably pay off debt. Your credit score decreases when you file for bankruptcy because it serves as an admission that you are unable to pay your debts, thus creditors will charge you higher interest rates to compensate for the risk of lending to a client with a lower score.

How can you improve your interest rates after bankruptcy?

If filing for bankruptcy pushes your credit score below 620, it may be in your best interest to rebuild your score as soon as possible. Making all future payments on time and using a secured credit card can help improve your reputation as a trustworthy borrower over time.

Chapter 7 bankruptcy is a source of relief for individuals who need time to gather the necessary funds for repaying their creditors. Returning to the same quality of life afterward can be challenging, but you can succeed by properly managing your credit score and interest rates.

Chapter 7: liquidation bankruptcy

Chapter 7 bankruptcy is also called “liquidation bankruptcy” because it discharges most types of debt completely. It takes a relatively short time, typically a few months. One of the downsides is that some of your property may have to be sold to partly repay your creditors, though your primary residence is generally protected. Also, a Chapter 7 bankruptcy filing can stay on your credit report for up to ten years. There are things you can do to start repairing your credit right away. But you may have a hard time securing a mortgage, auto loan or credit card without having to pay a higher interest rate, at least for a while.

Also, you must pass an income-based means test to qualify for Chapter 7 bankruptcy.

Chapter 13: reorganization bankruptcy

The other option is known as Chapter 13 bankruptcy, or “reorganization bankruptcy.” Instead of discharging your debts all at once, under Chapter 13 bankruptcy, you and your attorney negotiate a manageable repayment plan with your creditors. This takes longer to complete than Chapter 7 bankruptcy — usually three to five years — but it does not require you to sell your home or vehicles. Chapter 13 bankruptcy is usually the better choice for people with a steady income who can make monthly payments. It also tends to have less impact on your credit score than Chapter 7 bankruptcy and lasts on your credit report for up to seven years.

Still have questions about which form of bankruptcy protection is right for you? Consider contacting a bankruptcy attorney for a consultation.

What are some of the important differences that exist between Chapter 7 and Chapter 13 bankruptcies?

Chapter 7 bankruptcies

Per Quicken Loans, Chapter 7 bankruptcy may be a good option for you if you do not have enough money available to you to pay back at least part of your debts. To move forward with this type of filing, you have to first pass a means test that determines eligibility.

The means test compares your household income against the median household income in Maryland. Depending on circumstances, you may also have to summarize your expenses and compare them against your income to find out if you qualify for Chapter 7.

Chapter 13 bankruptcies

If you do not pass the means test, or if you have concerns about having to surrender your home or vehicle, you may want to consider a Chapter 13 bankruptcy. This type may be appropriate for your situation if you have at least some money to put toward outstanding debts.

With a Chapter 13 bankruptcy, you restructure your debts so that they become more manageable. As long as you keep up with your repayment plan, you may be able to keep your personal assets when you file for bankruptcy using this method.

While filing for bankruptcy doesn’t always result in a lower credit score, it can make it that much more challenging to get new lines of credit in the future. Depending on the type of bankruptcy you file, a bankruptcy will remain on your credit report for a considerable amount of time.

Chapter 7 versus Chapter 13

The chapter of bankruptcy you choose will determine how long it will remain on your consumer credit report. Chapter 7 bankruptcy liquidates all of your non-exempt assets and uses the proceeds to discharge your outstanding debt. Chapter 7 bankruptcies will remain on credit reports for 10 years.

Chapter 13 bankruptcy, or reorganization bankruptcy, requires you to repay a portion of your debts over a three to five-year period. Because you are still making partial payments to pay off debt, Chapter 13 bankruptcies only remain on credit reports for seven years.

Rebuilding credit after bankruptcy

While it’s rare for bankruptcy not to damage your credit score, in many cases, it’s not your poor credit rating that makes it challenging to rebuild your credit. Unfortunately, some lenders will not approve a loan to anyone who has a bankruptcy on their credit report.

But while establishing new lines of credit may indeed be difficult after you file for bankruptcy, it doesn’t mean that it’s impossible. There are many ways to rebuild credit after bankruptcy – including applying for a secured credit card. With consistent and on-time payments, the impact of your bankruptcy will gradually lessen and you will become a better candidate for lenders.

The bottom line

Bankruptcy can hit your credit score hard, but the damage can be undone. By practicing responsible spending habits and staying within your means, you can take full advantage of your fresh financial start.

Generally, the purpose of the means test is to separate those debtors who may have the ability to pay back some of their debt and those who are simply overwhelmed.

The means test forms will require information from you regarding matters like:

• Your monthly income
• Marital status
• Your spouse’s monthly income
• Dependents considered in tax deductions
• Pension and retirement income
• Interest, royalties and dividends
• Income from properties

The United States Bankruptcy Court will then review this information and determine your eligibility for chapter 7. Should the court find that you have enough money to pay off some of your debt, it is possible you will not qualify for chapter 7.

What if I do not qualify for chapter 7 bankruptcy?

If you do not qualify for chapter 7, you may need to file for chapter 13 bankruptcy. In the case of chapter 13 bankruptcy, you may keep some of your assets but you are required to pay off some of your debt within a three to five-year timeframe.

You may have heard of Chapter 7 and Chapter 11 bankruptcy but do not understand how these options differ. The differences are important because they can determine the future of your business.

Chapter 7 bankruptcy means liquidating your business

You may choose Chapter 7 bankruptcy if you believe there is no realistic hope of continuing to operate your business. In Chapter 7 bankruptcy, the court orders the sale of the assets of your business to satisfy your debts as far as possible. The court typically declares your remaining debts discharged without further payment.

While this form of bankruptcy discharges your debts, it leaves you without a business. Depending on the form of your business and personal agreements you may have signed in the past, you may also have to part with personal property.

Chapter 11 bankruptcy may mean a path forward for your business

If you believe that your business could be profitable again in the future, provided you could get some relief from your debts, Chapter 11 bankruptcy may be the answer. In Chapter 11 bankruptcy, you and your attorney work out a plan with the court for a repayment schedule. Your creditors may also petition the court and force you into bankruptcy if you are not current on your obligations.

Either way, the court may order a reduction of your debts, an extension of repayment terms, or other ways to provide relief from your debts. If the court is not satisfied that you can become profitable again, you may find yourself in Chapter 7 bankruptcy whether you want to be or not. Also, as with Chapter 7, protecting your personal assets in a Chapter 11 bankruptcy may require careful work.

Sometimes bankruptcy can be the only option for a business. Chapter 7 and Chapter 11 both offer ways to deal with otherwise unmanageable debt.

The type of bankruptcy that is best for an individual depends on his or her unique situation. This article will focus on some of the advantages and disadvantages of Chapter 7.

Chapter 7 pros

 The Consumer Recovery Network points out that Chapter 7 bankruptcy allows for the dissolution of many (but not all) debts. Thus, one of the primary advantages of Chapter 7 bankruptcy is the potential debt relief.

In a process which is known as liquidation, certain assets may be sold to pay off other non-dischargeable debts. If someone wants to keep their car and home, for example, he or she might be able to sell off other valuable items to pay off what he or she owes.

Chapter 7 cons

 The liquidation aspect can be seen as positive or negative, and thus if someone does not want to have to go through that process, Chapter 7 may not be ideal. If the person filing does not have enough additional assets to liquidate in order to help pay off his or her mortgage, for example, he or she may still be unable to avoid a foreclosure.

The American Bar Association also notes that Chapter 7 can stay on someone’s credit report for ten years, as opposed to Chapter 13 which stays for seven years. During this time, it may be difficult to get new lines of credit, and those which are available will likely carry high-interest rates.

Bankruptcy could provide potential monetary relief to consumers, and it may just save your life.

Older adults are most affected

In the United States, adults over the age of 55 hold an average of nearly $10,000 in debt on s. Most often, health care and medical costs top the list as the source of owed money. When you reach a well-deserved retirement age after a lifetime of work, you lessen your ability to accumulate income to pay off outstanding debt. You may already lack the ability to work due to physical restrictions.

The weight of long-term debt can prove incapacitating. Unfortunately, lingering debt leads to chronic stress. According to several health studies, stress affects older adults’ mental and physical state drastically.

Life-altering symptoms

The stress of owing thousands with the inability to pay may result in serious health risksand lower life expectancy.

These symptoms, including anxiety and stress, can cause:

• Fatigue
• Faltering immune systems
• Loss of concentration
• Heart problems
• Depression

Chronic stress also accelerates the aging process by further weakening deteriorating cells in older adults.

Relief of debt outcomes

Time spent with family and friends far exceeds lengthy phone calls with collection agents. Being unable to work and experiencing emotional and physical problems, the relief of debt by filing bankruptcy becomes increasingly essential.

Lifting the expensive debt burden can directly improve wellbeing. Debt is not a life sentence, but the health problems it induces may be.

According to a recent survey, more than 80 percent of workers who are closing in on retirement age are carrying some form of debt. Although their financial concerns may take numerous forms, the most common issues they face pertain to mortgages, auto loans and credit card bills. In addition to the stress involved with dealing with high amounts of debt, those who face significant monetary burdens could be less capable of saving for life after retirement.

As accounts fall behind and balances continue to rise, one may also be tempted to dip into retirement savings to get by. Unfortunately, a similar action could have consequences that can affect a person’s future. For instance, while a person could borrow from a 401(k) to help cover financial needs, if one cannot pay back the amount within a certain period, he or she could be facing substantial tax fees or early withdrawal penalties.

There are numerous ways that overwhelming monetary concerns could affect a person’s retirement plans. Those who wish to safeguard their financial futures could consider speaking with a consumer bankruptcy attorney for advice on all their available options. An attorney in Maryland can address all a client’s concerns and assist in forming a strategy with which to reduce or eliminate debts and enter retirement with peace of mind.

Source: Forbes, “Don’t Let Debt Sabotage Your Retirement”, Catherine Collinson, April 30, 2018