Our Maryland Bankruptcy Attorneys have handled literally hundreds of consumer bankruptcy cases. One of the most common questions we get is “What is Chapter 7 Bankruptcy and what is Chapter 13 Bankruptcy”. Here we give a description of each.
Each chapter of bankruptcy has its unique advantages. It is important to understand some of the major differences between these two chapters as well as the advantages and disadvantages. Our Maryland Bankruptcy Attorneys will help you determine which choice is best for you.
Chapter 7 Bankruptcy provides for a fast process where you can get rid of your dis-chargeable debt. This means that you can generally get rid of all of your credit card debt, garnishments, deficiencies (such as from a car repossession) and various other debt. In most cases you will keep your personal items including your car. And in many cases you will be able to keep your home. Thus many consumers will choose a Chapter 7 when they are looking for a fast process that allows for a “fresh start”. It is important to understand, however, that you must qualify under the “means test”. This means test was included as part of 2005 BACPA and is a necessity to enter into Chapter 7 Bankruptcy.
In Maryland in particular you will be able to keep $12,000 of exempt property per person filing (as of date of this article). That means that a couple could keep $24,000 of property while obtaining a discharge through Chapter 7 Bankruptcy.
Chapter 13 Bankruptcy, on the other hand, provides for an orderly repayment plan where you can keep assets with substantial value (real estate, automobiles, jewelry, savings) while making a payment plan with your creditors. This plan, once approved, will be over a period of 3-5 years and will stop harassing creditor calls. Chapter 13 Bankruptcy also may allow you to strip the second loan from your home and cram down your car loans. Thus the major advantage of Chapter 13 Bankruptcy is that you will be able to keep your assets. The major disadvantage is that you will be in a payment plan for a 3-5 year period and will need to pay a portion of your debt, unlike the Chapter 7 fresh start where you do not pay these debts.
Chapter 13 Bankruptcy is particularly useful when you are behind on your mortgage payments but would like to keep your home. Your chapter 13 bankruptcy plan will allow you to pay the behind payments (also know as arrears) over a period of 3-5 years (36 months to 60 months). So, for example, if you are behind $30,000 on your mortgage and submit a 60 month plan, then you would pay approximately $500 a month for your arrears. Of course, you will still have to pay your monthly mortgage once your plan starts.
Chapter 11 Bankruptcy is normally used by larger businesses or individuals with substantial assets. This is normally a reorganization of a business and most consumers would not fall into this category.
The local rules of bankruptcy differ a bit state by state. Thus, it is important that you speak to an attorney in your state to determine your best options. Some states, for example, have a homestead exemption which could protect equity in your home. Some other states, like Maryland, have a tenancy by the entirety exemption which allows a debtor to protect individual equity in a home against joint creditors, depending on the circumstances. These powerful protections could help you decide to file in one state instead of another.
In Maryland in particular there are some important exemptions to remember. First of all, there is a tenancy by entirety exemption. When properly available and applied, this exemption allows protection of the equity of a home against individual debtors. Thus, for instance, a debtor could individually apply for chapter 7 and wipe out $40,000 of credit card debt while still protecting a home held as tenancy by the entirety with $100,000 of equity. In addition, Maryland offers exemptions which add up to about $12,000 in exempt property per debtor. In a couple this means $24,000 of exempt property. This $24,000 is substantial when taken into consideration that the value used is the “fire sale” value of items and not the original market value.
Maryland also has local rules which makes Maryland bankruptcy unique. First of all, Maryland does not allow “federal exemptions”. These exemptions are a list of federally available exemptions, meaning that any state that wishes may allow these exemptions. Maryland has opted out of these exemptions, however, and as such they are not available. You will therefore need to look to the specific Maryland exemptions as described above.
Whether you choose Chapter 7 or Chapter 13 bankruptcy in Maryland you will be headed to the same locations for your initial bankruptcy meeting (also known as a 341 hearing) and you will be in the same court houses should you have to go to the courthouse (not very common). Maryland is divided into two divisions: the Greenbelt division and the Baltimore division. You are assigned a division based on your county of residence. A list of the counties and divisions can be found on the court’s website at http://www.mdb.uscourts.gov/home.aspx. If you are assigned to the Greenbelt division, your 341 meeting will occur in Greenbelt or in Hagerstown, depending on proximity. If you are assigned to the Baltimore division, your 341 hearing will occur in Baltimore or Salisbury, again depending on proximity.
So the answer to the question “What is Chapter 7 and what is Chapter 13 Bankruptcy” can be answered by looking to the unique characteristics of each bankruptcy. Generally you could think of Chapter 7 bankruptcy as wiping out debts while keeping up to $12,000 of property per person (exemption based on Maryland exemptions) and think of Chapter 13 bankruptcy as an orderly repayment plan to your creditors. Remember that in both cases you will need to use Maryland exemptions.
Contact us today to find out if Chapter 7 Bankruptcy or Chapter 13 Bankruptcy is right for you. Our Maryland Bankruptcy Lawyers have handles hundreds of cases and helped clients discharge millions of dollars of debt.
Maryland Bankruptcy Attorney
Victor Palmeiro is a bankruptcy attorney in Maryland. Victor Palmeiro helps Maryland residents apply for Chapter 7 bankruptcy and Chapter 13 bankruptcy relief. Contact Victor Palmeiro, Maryland Bankruptcy Lawyer, directly for more information.
Maryland Bankruptcy Attorney