In Maryland, people may consider filing for bankruptcy to seek relief from overwhelming debt. However, there is a common misconception that they must have a low income to qualify for bankruptcy protection.
Contrary to this belief, there is no specific income threshold that disqualifies individuals from filing for bankruptcy in Maryland.
Means test for bankruptcy
The median household income in Maryland is $98,461. For bankruptcy, the focus is not solely on income but rather on the individual’s overall financial situation. The bankruptcy court assesses various aspects of an individual’s financial circumstances, including assets, expenses and debts. In some cases, individuals filing for bankruptcy in Maryland may undergo a means test to determine their eligibility for Chapter 7 bankruptcy.
Chapter 7
This type allows for the discharge of certain debts. The means test compares the individual’s income to the median income for their household size in Maryland. The same income for a household of two marks a big difference from income for a household of six.
If the individual’s income falls below the median, they may qualify for Chapter 7 bankruptcy without further scrutiny. However, even if one’s income exceeds the median, they may still qualify for Chapter 7 bankruptcy based on their disposable income and expenses.
Chapter 13
Individuals who do not pass the means test or who wish to keep certain assets may opt for Chapter 13 bankruptcy. Unlike Chapter 7, Chapter 13 involves a repayment plan where the debtor agrees to repay a portion of their debts over three to five years. The amount of repayment is based on the debtor’s income, expenses and the value of nonexempt assets.
Ultimately, the decision to file for bankruptcy in Maryland depends on an individual’s unique financial circumstances. While income is a factor, it is not the sole determinant of eligibility.