While the basic rules and procedures are mandated by federal law, filing for Chapter 13 bankruptcy protection in each individual state will vary. The length of time that the debtor is required to repay creditors is determined by each state's median income, and the amount of exemptions that may be claimed is also determined by each state.

What is chapter 13 bankruptcy?

This type of bankruptcy allows debtors to repay unsecured debt according to their disposable income. Unsecured debt is not secured by collateral, such as a house or car. Credit cards, personal loans, and other debts that were not incurred on a single large purchase are examples of unsecured debt. 

These payments are only for unsecured debt. If the debtor still owes money on a secured debt, they must repay the entire balance of the loan through a reaffirmation of the debt. Any arrears or late payments must also be repaid if the debtor wishes to keep the property.

Debtors must provide a list of creditors, along with the amount owed to each creditor. They must also verify their income, assets, and monthly expenses. Any income that exceeds verifiable monthly expenses is repaid through a trustee of the federal bankruptcy court to creditors. Assets such as equity in a home or other property are also considered, although exemptions for assets vary from state to state.

Debtors that earn less than their state's median income must make monthly payments for three years, while those earning over the state's median income must pay for five years. This amount may be substantially less than the actual balances owed, and all remaining balances are forgiven after the mandated repayment period. 

Who can file for chapter 13 bankruptcy?

Because this type of bankruptcy is income based, the debtor must have sufficient income to repay their secured debts in a timely manner after paying their monthly living expenses. If a debtor has insufficient (or no) income, then they must file for chapter 7 bankruptcy. 

This involves surrendering secured assets, such as a home and car, but also leaves the debtor free of all debt, with no repayment to creditors.

What are the personal exemptions for Chapter 13 bankruptcy in Maryland?

Chapter 13 bankruptcy allows the debtor to continue making payments on secured property such as a home or vehicle, protecting the equity from being used to repay their unsecured debts.

However, Maryland law also mandates additional exemptions that allows a debtor to keep additional assets. These include the following items:

$5000 exemption for tool of trade

This can include clothing, tools, appliances and various other items used for work related purposes, but doesn't include a vehicle used for work.

$1000 personal property exemption

Household items, pets, and other personal items of value

$6000 wild card exemption

This exemption protects cash or assets such as equity up to $6000 in value. Real property or personal property (physical property) up to $5000 in value.

Bankruptcy forms can be complicated and intimidating. Hiring a bankruptcy attorney (such as Morrison & Murff) may be your best bet in ensuring that you get the best possible outcome and begin to rebuild your credit and escape from a crushing burden of debt.