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How Chapter 13 Bankruptcy Works In Maryland

— July 12, 2022

If a debtor fails to complete either bankruptcy course, the debtor cannot receive a bankruptcy discharge.

You may be considering filing bankruptcy and wondering whether to pursue a Chapter 13 bankruptcy in Maryland. 

Deciding between these two types of consumer bankruptcy can be confusing. For example, you may have received a Chapter 7 bankruptcy discharge in 8 years or you may not qualify for Chapter 7 bankruptcy. There are certain pros and cons of Chapter 7 and Chapter 13 bankruptcy in Maryland. In this article, we take a closer look at Chapter 7 and Chapter 13 bankruptcy cases and some topics specific to bankruptcy in Maryland. You can also read this article here, if you are interested in learning about the costs to filing bankruptcy in Maryland.

The goal of the article is to inform you about a bankruptcy in Maryland by covering the following topics:

  • What is Chapter 13 in Maryland?
  • What is Chapter 7 in Maryland?
  • Maryland Means Testing
  • Maryland Bankruptcy Exemptions
  • Debtor Education Courses and Credit Counseling Courses in Maryland
  • Maryland Trustees and Bankruptcy Courts 
  • Alternatives to Filing Bankruptcy in Maryland

What is Chapter 13 in Maryland?

Chapter 13 bankruptcy in Maryland is popular for individuals and couples who need a little help reorganizing their debts into an affordable monthly plan. Through a Chapter 13 repayment plan, a debtor can repay the portion of unsecured debts the debtor can afford to repay based on his or her financial situation. A debtor is the term used to refer to an individual who files for bankruptcy. At the end of the bankruptcy plan, the remaining amount owed to unsecured creditors is discharged (forgiven).

Some debts are not eligible for a bankruptcy discharge. Most tax debts, alimony, child support, most student loans, personal judgments related to DUI, and other government debts are not dischargeable in bankruptcy. The same is true in a Chapter 7 case.

Some benefits and disadvantages of filing under Chapter 13 bankruptcy in Maryland include:

  • Must meet income requirements to qualify for a Chapter 7 bankruptcy discharge.
  • Stop foreclosure and repossession by paying the past due payments through a Chapter 13 plan.
  • May be able to reduce the payment amount for a car loan and pay the car loan in full.
  • Pay a percentage of unsecured debts instead of paying the full amount. 
  • Catch up past due child support and alimony to avoid court intervention.
  • Plans are typically for 60 months.
  • Cannot buy or sell major assets without court approval.
  • Cannot incur debt without court approval.

What is Chapter 7 in Maryland?

A Chapter 7 bankruptcy in Maryland helps people who cannot afford to repay any portion of their unsecured debts. In a Chapter 7 case, a Chapter 7 trustee reviews assets to determine if the trustee can sell any of the debtor’s property to repay the debtor’s unsecured debts. However, most Chapter 7 cases in Maryland do not result in the loss of property. Bankruptcy exemptions (discussed in more detail below) generally protect most, if not all, of the debtor’s property. Some benefits and disadvantages of filing under Chapter 7 bankruptcy in Maryland include:

  • Get rid of debts in as little as four to six months.
  • Do not need to repay any of your discharged unsecured debts.
  • Can get rid of homes and cars that are worth less than you owe to the creditor without a deficiency judgment. 
  • Less costly to file compared to a Chapter 13 case.
  • There is a risk of losing some property if you own assets that have a high net worth with no liens against the property. 

Most people have to qualify for a Chapter 7 bankruptcy. You can take the Maryland Chapter 7 calculator below to estimate your qualification.

Maryland Means Testing 

You may be wondering whether you qualify for Chapter 7 in Maryland. The Maryland bankruptcy Means Test is important in both Chapter 7 and Chapter 13 cases. The Means Test determines whether you qualify for a bankruptcy discharge under Chapter 7. The calculations in the Means Test impact the amount you must pay through your Chapter 13 plan. Therefore, you must calculate the Means Test correctly because it can have a significant impact on your bankruptcy options. 

Current Monthly Income

The first part of the Means Test calculates your current monthly income (CMI) and yearly median income. CMI is based on the six months before you file a Chapter 7 or Chapter 13 case. You add together all income received during those six months and divide by six to calculate CMI. Household income includes all income, except for Social Security Act income, such as SSI, SSDI, and Social Security retirement. Examples of income used for the Means Test include, but are not limited to:

  • Wages and salaries
  • Bonuses and commissions
  • Net income from rental property or businesses
  • Retirement, annuity, and pension income
  • Interests and dividends
  • Alimony and child support
  • Regular contributions to household income, such as a non-filing spouse’s income

A bankruptcy quiz can help you determine your estimated Chapter 13 plan payment to help you make the most informed decision.

Annual Median Income 

Your annual household median income is based on your CMI. Multiply your CMI by 12 to determine median income. In a Chapter 7 case, you “fail” the income test when your median income is more than the Maryland median income level for a home with the same number of people that live in your home. You could still “pass” the Means Test and file Chapter 7 if your disposable income is below a certain amount.

In a Chapter 13 case, if your median income is above the state median income level, you must file a 60-month Chapter 13 repayment plan. If your median income is below the state level, you may file a 36-month plan, if you desire.

The median income figures for each state are based on Census Bureau data. The figures are often revised every 6 months. The most recent median income levels are for filings on or after May 15, 2022.

Disposable Income

Disposable income is the money you have each month after you pay your ordinary living expenses. It is the money you can use to pay debts and discretionary spending (i.e. movies, eating out, etc.). In a Chapter 7 case, if you fail the median income test, you can still receive a discharge in Chapter 7 if the total for disposable income is negative or extremely low.

Man with calculator; image by Towfiqu Barbhuiya, via
Man with calculator; image by Towfiqu Barbhuiya, via

In a Chapter 13 bankruptcy, the disposable income is a factor in the amount of your bankruptcy plan. You are expected to pay the amount of your disposable income into your plan. Therefore, it is essential to include every allowable expense in the Means Test to lower the disposable income as much as possible.

Some expenses are limited and based on information from the IRS National Standards for Allowable Living Expenses. These figures are revised every few months, so always check for the most recent figures.

Other expenses include mortgage/rent payments, car payments, childcare costs, court-ordered domestic support payments, payroll taxes, life insurance premiums, and other living expenses. You may not be able to deduct all living expenses, such as expensive gym memberships or other extravagant costs that are unnecessary to maintain a basic standard of living. 

In terms of filing, the cost to file bankruptcy in Maryland is $338 for a Chapter 7 bankruptcy and $313 for a Chapter 13 bankruptcy. Please note that this is only the filing fee, so you would also need to consider attorney fees and trustee fees in the case of the Chapter 13.

Maryland Bankruptcy Exemptions

Filing for bankruptcy relief does not mean that you have to give up everything of value that you own. When Congress created the bankruptcy system, it understood that debtors would need to retain some of their property so that they could recover after a financial hardship.

Therefore, Congress created federal bankruptcy exemptions. Bankruptcy exemptions protect specific amounts of equity in property from being used to repay creditors. What you can protect depends on what you own and the amount of equity in the specific asset.

Maryland has chosen to create state bankruptcy exemptions. Debtors filing for Chapter 7 or Chapter 13 bankruptcy in Maryland must use Maryland bankruptcy exemptions if they have resided in the state for at least two years before filing for bankruptcy relief. 

Many of Maryland’s state exemptions exceed the federal bankruptcy exemptions, except for the exemption in a person’s home. The Maryland homestead exemption cannot exceed the federal homestead exemption.

Exemptions are revised periodically. Therefore, you should always check for the most recently enacted code section to obtain the correct figures to use when filing a bankruptcy case. 

Why do bankruptcy exemptions matter in Chapter 7 and Chapter 13?

In a Chapter 7 case, the bankruptcy trustee reviews all of your assets to determine if any assets can be sold to repay your debts. Only assets that have net equity are considered for sale. Net equity is calculated by subtracting any valid liens and bankruptcy exemptions from the asset’s fair market value. If the net equity is zero or negative, the trustee is not interested in selling the property because there is no money left over to pay your creditors. 

Most Chapter 7 cases filed in Maryland are no-asset cases, which means the debtors keep all their property. If you are unsure about bankruptcy exemptions, you may want to consult with a bankruptcy lawyer before filing a Chapter 7 case. Once you file a Chapter 7 bankruptcy case, you cannot voluntarily dismiss the case to avoid the Chapter 7 trustee from selling your property.

In a Chapter 13 case, the exemptions are used in a similar way. However, instead of liquidating property, the Chapter 13 trustee can require you to pay more to your creditors if you have net equity in property. In other words, if you have property that is valued higher than the allowed exemptions, your Chapter 13 plan payment could be higher. The intent is to ensure that creditors receive at least as much as they would in a Chapter 7 case, in addition to any disposable income you might have to pay toward the debts. 

Debtor Education Courses and Credit Counseling Courses in Maryland

Debtors in Chapter 7 and Chapter 13 must complete two bankruptcy courses before they can receive a bankruptcy discharge. The first bankruptcy course is completed before the Chapter 7 or Chapter 13 bankruptcy petition is filed. The Maryland Credit Counseling Course involves preparing a budget and reviewing your debt-relief options, including bankruptcy. 

The second bankruptcy course cannot be completed until after you file your bankruptcy case. The Maryland Debtor Education Course reviews topics that can help you manage your finances after bankruptcy, including personal budgets, using credit wisely, and improving your credit score.

If a debtor fails to complete either bankruptcy course, the debtor cannot receive a bankruptcy discharge. What does that mean? It means the debtor still owes all the debt he or she owed before filing for bankruptcy relief.

Maryland Trustees and Bankruptcy Courts

The Bankruptcy Court for the District of Maryland has three divisions:

  • Baltimore Division is located in the Garmatz Federal Courthouse at 101 West Lombard Street, Baltimore, MD.
  • Greenbelt Division is located in the Federal Courthouse at 6500 Cherrywood Lane, Greenbelt, MD.
  • Salisbury Division is located in the Salisbury Courthouse at 129 East Main Street, Salisbury, MD. NOTE: The courthouse in Salisbury is only for hearings. All documents are filed with the clerk’s offices in Baltimore or Greenbelt.

341 Meetings of Creditors are held in Baltimore, Hagerstown, Greenbelt, and Salisbury. Your hearing location is based on the division handling your Chapter 7 or Chapter 13 case and where you lived when you filed your bankruptcy petition.

The Maryland Bankruptcy Court provides information about understanding bankruptcy on its website, including a glossary of bankruptcy terms and other resources. 

The United States Trustees (UST) Office supervises private bankruptcy trustees appointed in each Chapter 7 and Chapter 13 cases. The trustee holds the 341 Meeting. Chapter 7 trustees may liquidate non-exempt assets on behalf of unsecured creditors. Chapter 13 trustees receive plan payments and pay creditors according to the Chapter 13 plan. You can access a list of Maryland Chapter 7 Trustees and Maryland Chapter 13 Trustees on the UST’s website.  We have also listed the trustees below in addition to their contact information:

Should You File a Chapter 13 Bankruptcy in Maryland?

Filing a Chapter 13 bankruptcy in Maryland is ultimately your decision and you understand your finances best. You can use a free consultation from a local attorney to help you understand your option better or consider a bankruptcy alternative such as debt negotiation or debt management. Finally, there are reasons why people consider a Chapter 13 over a Chapter 7 bankruptcy even if they qualify for Chapter 7 bankruptcy that may be considered.

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