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Will you lose everything if you declare bankruptcy?

On Behalf of | Jun 8, 2023 | Firm News

Bankruptcy law offers a lifeline to people who are struggling with overwhelming debt. Unfortunately, many Maryland residents are afraid to tale advantage of this lifeline because they fear that they will lose everything if they declare bankruptcy. If this describes you, you will be happy to learn that this is not true. Maryland law protects certain types of property as exempt.

Chapter 7 bankruptcy

Before we explain exemptions, we should explain that there are two main types of personal bankruptcy: Chapter 7 and Chapter 13, named after their places in the U.S. Bankruptcy Code. Each has its own advantages, disadvantages and requirements for eligibility.

Chapter 7 is the fastest-acting and most thorough type. Those who meet the eligibility requirements can have most types of debt discharged in 3-5 months.

However, Chapter 7 requires debtors to liquidate some of their assets in order to pay off their creditors. This is why some people fear that bankruptcy means they will lose everything. Fortunately, the exemptions let them keep their most important possessions.

What property is exempt?

Some of the most important exemptions include:

  • Homestead: This exemption allows homeowners to keep up to $25,150 in equity in their homes. Renters can keep their security deposits.
  • Personal property: There is a long list of types of personal property that are exempt from the liquidation requirements of Chapter 7. These include household furnishings and appliances (up to a limit), tools you need for your profession, health aids and more.
  • Insurance, benefits and more: Maryland law exempts unpaid wages, some proceeds from insurance, retirement benefits, alimony, child support disability benefits, awards in personal injury claims and more.
  • Wildcard: The so-called wildcard exemption lets you keep up to $6,000 in cash or property.

Note that Maryland does not provide an exemption for a motor vehicle, but you may be able to claim your vehicle as exempt using the wildcard exemption.