Bankruptcy refers to a legal process that begins when a person or a business fails to meet their financial obligations. There are several different types of bankruptcy under federal law. Consumer bankruptcy specifically refers to a bankruptcy motion that is filed when an individual is unable to pay back any debts that they incurred for personal needs. When the bankruptcy process is completed, they will no longer be held liable for those debts.
Although the individual then has a clean financial slate, the bankruptcy will remain on their credit report for up to ten years. Because of these lasting consequences, bankruptcy should only be utilized as a last resort during extreme financial hardship.
A bankruptcy exemption is what allows a debtor to keep certain property or assets, even after bankruptcy has been filed. Specific bankruptcy exemptions are defined by state statute; and, exempt property cannot be seized nor sold in order to satisfy the debts of the debtor.
Bankruptcy exemptions are key in both Chapter 7 and Chapter 13 bankruptcies. In a Chapter 7 bankruptcy, exemptions assist in determining what property the debtor is allowed to keep once the bankruptcy discharge has been granted. In this way, bankruptcy exemptions help individuals protect their property after a bankruptcy. In a Chapter 13 bankruptcy, exemptions help determine how much a person must pay out to their unsecured creditors. This can mean the difference between getting a plan confirmed, and getting knocked out of Chapter 13.
What Are Maryland’s Bankruptcy Exemptions?
Maryland does not allow its residents to utilize the federal exemptions for bankruptcy. Federal exemptions include, but are not limited to:
- Homestead Exemption: Equity in the dwelling used as the debtor’s residence, up to $21,625 in value;
- Equity in Vehicle: Up to $3,450 in value in one motor vehicle; and
- Tools of the Trade: Up to $2,175 in value.
Only Maryland statutes define and list the bankruptcy exemptions that may be utilized. It is important to note that these exemptions may be doubled for a married couple. Additionally, these numbers were adjusted for inflation and may have been changed again April 1st, 2016:
- Homestead: Equity in dwelling used as a residence, up to $22,975 in residential property;
- Personal Property: This includes appliances, furnishings, clothing, books, and pets; burial plots; and, professionally prescribed health aids, such as wheelchairs. It is important to note that the value of personal property is the fair market value of the property, not what you originally bought the property for;
- Tools of the Trade: This includes professional books, clothing, tools, and inventory, up to $5,000;
- Wages: This is either 75% of disposable wages, or $145 per week. It is important to note that in Caroline, Kent, Queen Anne’s, or Worcester County, it is either up to 75% of disposable wages or thirty times the federal minimum wage;
- Insurance: This umbrella covers:
- Life insurance proceeds that go to the debtor’s spouse, child, or dependent;
- Medical insurance benefits deducted from wages;
- Some medical insurance payments; and
- Disability and health insurance benefits, as well as fraternal benefit society benefits;
- Pensions: This includes ERISA benefits, such as IRAs, as well as state employee retirement benefits;
- Public Benefits: Including unemployment benefits, workers’ compensation, public assistance, and crime victims’ compensation. Also includes veterans’ benefits and social security payments;
- Alimony and Child Support: This covers court ordered child support payments, and some alimony payments;
- Other and Wildcard: “Other” refers to settlements or damages received from illness, injury, or wrongful death. It can also refer to settlements or damages from lost future earnings, and property resulting from a business partnership. “Wildcard” refers to exemptions for personal property of the debtor’s choice. This can be up to $6,000 in cash and/or property, or an additional $5,000 value in personal property.
What Are Some Examples of Non-Exempt and Exempt Property Under Maryland Law?
Under Maryland law, if the property is secured by a loan and the debtor is current on their payments, they may decide to continue making those payments in order to maintain the property through the bankruptcy process. However, the equity must still be covered by applicable exemptions. Married couples who are filing for bankruptcy jointly may each claim a full set of exemptions unless otherwise specified.
Some of the most common bankruptcy exempt properties include those properties listed above, which include:
- Equity in an individual’s homestead. As noted earlier, this amount is up to $22,975 in a residential property;
- Tools of the trade, including professional books, work gear, tools, and inventory, up to $5,000;
- Hearing aids;
- Damages associated with a civil injury lawsuit;
- Wildcard $6,000 exemption ($12,000 for married couples), which can be used on anything;
- Life insurance proceeds;
- Veteran benefits;
- Child support and alimony;
- Public assistance;
- Unemployment benefits;
- Qualified pension plans, state employee retirement accounts or benefits, and IRAs; and
- Household furnishings up to $1,000 ($2,000 for married couples) in value.
Importantly, property that cannot be exempt in accordance with Maryland bankruptcy or federal bankruptcy laws, is known as non-exempt property. Common examples of non-exempt property in Maryland includes:
- Second homes, or other real property that is not an individual’s homestead;
- Secondary automobiles, such as your second car or truck;
- Personal items over the exemption amount, such as coin collections, expensive art, jewelry, or other valuable items; and
- Stocks, bonds, bitcoin, or other investments.
Can a Creditor Claim My Exempt Properties in Maryland?
It is important to note that when you have exempt properties in Maryland, that means the creditors cannot legally take your property. However, the court must be informed that the property is exempt, which may require filing a motion. In Maryland, when a creditor takes you to court to enforce a judgment against you regarding exempt property, the creditor must first get legal permission to take your property to pay off your debt.
Once again, if your property is secured by a loan, such as an individual’s car or home, and you are current on your payments, you may elect to keep making payments on that loan to keep the property through bankruptcy.
The most important step in protecting your property from creditor’s collection efforts is to file for bankruptcy, as certain property and wages will be protected on the date of filing. Also, under Chapter 13 bankruptcy, so long as you meet the terms of the plan, you will have protection against foreclosure on your home by your mortgage lender.
Do I Need a Bankruptcy Lawyer?
As can be seen, deciding which property is exempt property under Maryland law is a complicated matter. Therefore, if you are contemplating filing bankruptcy, or in the middle of the bankruptcy process, it is important to consult with a well qualified and knowledgeable Maryland bankruptcy attorney.
An experienced and local bankruptcy attorney will be able to help you determine which property is exempt property, and how to best utilize the full extent of allowable exemptions under the law. Additionally, an experienced bankruptcy attorney will be able to assist you in filing your bankruptcy position, represent you at the meeting of the creditors, and represent your interests in court should any issues arise. A Maryland bankruptcy attorney will also know the deadlines associated with claiming the exemptions.