If you're considering filing for Chapter 13 bankruptcy in Maryland, you may have several questions about what it entails and how it can help you regain control of your financial situation. Chapter 13 bankruptcy allows individuals to reorganize their debts and repay them over time, providing a viable option for those who want to keep their assets while resolving their debts.
This blog will cover the most common questions people have about Chapter 13 bankruptcy, helping you understand the process and determine if it’s the right choice for you.
What Is Chapter 13 Bankruptcy?
Chapter 13 bankruptcy, also known as a “wage earner’s plan,” is designed for individuals who have a regular income and want to reorganize their debts into manageable payments. Unlike Chapter 7, where debts are typically discharged after liquidation of non-exempt assets, Chapter 13 allows you to keep your property while making payments over three to five years.
The repayment plan is based on your income, expenses, and the amount of debt you owe. Once you complete the repayment plan, any remaining eligible debts may be discharged.
Who Qualifies for Chapter 13 Bankruptcy?
To file for Chapter 13 bankruptcy in Maryland, you must meet several qualifications:
- Income Requirements: You must have a regular source of income to make payments under the repayment plan. This income can come from various sources, such as wages, self-employment, or Social Security benefits.
- Debt Limits: As of 2024, your unsecured debts (such as credit cards and medical bills) must be less than $2.75 million, and your secured debts (such as mortgages and car loans) must also be below this limit.
- Past Bankruptcy Filings: If you have filed for Chapter 7 bankruptcy within the last four years or Chapter 13 within the last two years, you may not be eligible for Chapter 13 bankruptcy.
An experienced bankruptcy lawyer can review your financial situation and help determine whether you meet the eligibility criteria for Chapter 13.
How Does the Chapter 13 Repayment Plan Work?
When you file for Chapter 13 bankruptcy, you’ll work with the bankruptcy court and a trustee to develop a repayment plan that lasts between three and five years. The length of your plan depends on your income:
- Three-Year Plan: If your income is below the Maryland median income for your household size, you can propose a three-year repayment plan.
- Five-Year Plan: If your income is above the median, you must propose a five-year repayment plan.
The repayment plan will consolidate your debts into one monthly payment that goes toward both your secured and unsecured debts. Secured debts, such as mortgage arrears or car loans, must typically be paid in full, while unsecured debts may only be partially repaid depending on your financial situation. Any unpaid unsecured debts after completing the plan may be discharged.
What Happens to My Assets in Chapter 13 Bankruptcy?
One of the primary benefits of Chapter 13 bankruptcy is that it allows you to keep your assets, including your home and car, while catching up on overdue payments. If you're behind on your mortgage or car loan, Chapter 13 gives you the opportunity to make up missed payments over time, avoiding foreclosure or repossession.
However, you must continue making regular mortgage or car payments as they come due during the repayment period. Failure to stay current on these payments could result in the loss of your property.
What Debts Can Be Discharged in Chapter 13 Bankruptcy?
At the end of your repayment plan, some of your debts may be discharged, meaning you are no longer legally obligated to pay them. Dischargeable debts in Chapter 13 bankruptcy typically include:
- Credit card debt
- Medical bills
- Personal loans
- Utility bills
However, certain debts are not dischargeable in Chapter 13, such as:
- Child support and alimony
- Most student loans
- Certain tax debts
- Debts incurred through fraud or willful misconduct
A Chapter 13 bankruptcy lawyer can help you understand which debts can be discharged and how they will be treated in your repayment plan.
How Will Chapter 13 Bankruptcy Affect My Credit?
Filing for Chapter 13 bankruptcy will negatively affect your credit score, and the bankruptcy will remain on your credit report for seven years. However, the impact on your credit will likely lessen over time as you successfully make payments and complete your repayment plan. Additionally, many people who file for Chapter 13 already have poor credit due to missed payments, high debt balances, and collections accounts, so the bankruptcy itself may not cause a significant further drop in credit score.
While it may take time to rebuild your credit after bankruptcy, it’s possible to recover. Some individuals even start receiving credit offers shortly after completing their Chapter 13 repayment plan, though they may come with higher interest rates.
How Do I File for Chapter 13 Bankruptcy in Maryland?
The process of filing for Chapter 13 bankruptcy can be complex, and it's important to follow all required steps to ensure your case is successful. Here’s a brief overview of the filing process:
1. Consult with a Bankruptcy Lawyer
Before filing, consult with a bankruptcy lawyer who can evaluate your financial situation, explain your options, and help you decide if Chapter 13 is the best solution for your needs. Your lawyer will guide you through the filing process and ensure all documents are submitted correctly.
2. Complete Credit Counseling
You must complete a credit counseling course from an approved provider within 180 days before filing for bankruptcy. This course helps ensure you’ve explored all other options before filing for Chapter 13.
3. File the Bankruptcy Petition
Once you’ve completed credit counseling, your lawyer will help you file the bankruptcy petition with the court. This includes submitting detailed information about your income, expenses, debts, and assets. You’ll also need to submit a proposed repayment plan.
4. Attend the Meeting of Creditors
After filing, you’ll attend a meeting of creditors, where the bankruptcy trustee and your creditors may ask questions about your finances and repayment plan. Your lawyer will accompany you to this meeting to help address any concerns.
5. Complete the Repayment Plan
After your repayment plan is approved by the court, you will start making regular monthly payments to a bankruptcy trustee. The trustee is responsible for distributing these payments to your creditors based on the terms of your plan. It’s crucial to ensure that all payments are made on time and in full for the entire duration of your repayment period to avoid complications or dismissal of your case.
6. Receive a Discharge
Upon successfully completing your repayment plan, any remaining eligible debts will be discharged, and you’ll be free from further legal obligation to repay them.
Thinking of Filing for Chapter 13 Bankruptcy in Maryland? Contact Maronick Law LLC!
If you’re considering filing for Chapter 13 bankruptcy in Maryland, it’s essential to have an experienced legal team on your side. At Maronick Law LLC, our dedicated bankruptcy lawyers are here to guide you through every step of the process, helping you regain control of your finances and protect your assets.
Contact us today at 443-551-2747 or through our online contact form to schedule a consultation and learn more about your options for debt relief.