More than 7,200 businesses and consumers in Maryland filed bankruptcy from January through July of this year, according to figures available from the American Bankruptcy Institute. The numbers show a decrease in recent filings, but experts are predicting that 2021 will bring a wave of bankruptcy filings as most of the financial relief, including business loans and extended unemployment benefits, offered to consumers and business owners is expected to expire shortly before the end of the year.
Of the January 2020 through July 2020 bankruptcy filings, 73% (5,274) of the businesses and consumers filed for Chapter 7 and 26% (1,906) filed for Chapter 13.
Consumer and business bankruptcies can be divided into two types — liquidation and reorganization. A Chapter 7 bankruptcy allows debtors to liquidate or to cancel out most of their unsecured debts while a Chapter 13 bankruptcy allows a debtor to pay all or a portion of the amount owed on their debts over a three or five-year period.
Unsecured debts are those debts such as credit and department store credit cards that are not backed by property. Secured loans, on the other hand, are backed by property. Mortgages and car loans are secured loans.
Not everyone can file for Chapter 7 bankruptcy. For example, if your disposable income is enough to fund a Chapter 13 repayment plan — after subtracting certain allowed expenses and monthly payments for certain debts — you won’t be allowed to use Chapter 7 bankruptcy. Of course, if you’ve recently lost your job and don’t have any money coming in, then you can file a Chapter 7 bankruptcy.
Chapter 13 bankruptcy is also known as “wage earner” bankruptcy because, in order to file for Chapter 13, you must have a reliable source of income that you can use to repay some portion of your debt. When you file for Chapter 13 bankruptcy, you must propose a repayment plan that details how you are going to pay back your debts over the next three to five years. The minimum amount you’ll have to repay depends on how much you earn, how much you owe, and how much your unsecured creditors would have received if you’d filed for Chapter 7 bankruptcy.
If you have secured debts such as a house or a car, Chapter 13 gives you an option to make up missed payments to avoid repossession or foreclosure. You can include these past due amounts in your repayment plan and make them up over time.
There is a means test that varies from state to state. When you file for bankruptcy in Maryland, you must compare your income to the median income for a household of your size in Maryland. If your income is less than the median, you will be eligible to file for Chapter 7 and, if you choose to file for Chapter 13, you can use a three-year repayment plan. This is the means test. If your income is above Maryland’s median income, you still might qualify for Chapter 7, but you’ll have to provide detailed information about your expenses and payments on secured debts in order to find out. An experienced bankruptcy attorney can help you to determine which type of bankruptcy best fits your needs.
Though bankruptcy can eliminate many kinds of debts, such as credit card debt, medical bills and unsecured loans, there are many types of debts, including child support and most tax debts, that cannot be wiped out in bankruptcy.
If you are considering bankruptcy and are located in Annapolis, Baltimore, Essex, Glen Burnie, Ocean City, Towson or White Marsh, then a bankruptcy attorney can help you to determine the best way to get rid of debt and out from under creditor calls. A bankruptcy attorney can devise a strategy for you that allows you to use the bankruptcy laws in Maryland to your advantage. The consultation is free.
The Law Office of Thomas J. Maronick is open during the pandemic. We can meet with you remotely if you have access to Zoom. In addition to bankruptcy, we also offer other legal services such as criminal defense, estate planning, wills and help with family law/domestic matters. You can contact Thomas Maronick on his cellphone at 202.288.0167, the law office at 410.934.3007 or through the website.