Which Type of Bankruptcy Is Right for Me?

As of September 1, 2022, there are 4,795 current year cases filed in the U.S. Bankruptcy Court in the District of Maryland. If you intend to join this rank (as a consumer, not a business), you have two options. Discover the benefits and drawbacks of each type with this comprehensive post about bankruptcy in Maryland.

Chapter 7 Bankruptcy

Most people choose this option because it is free and quick. You can completely file this type of bankruptcy in only a few months. If you are filing for bankruptcy while having mostly essential property, then Chapter 7 bankruptcy is the more sensible choice. Chapter 7 bankruptcy has no payment plan. You could lose your non-essential properties as payment to catch up on your debt. Meanwhile, debts that you cannot discharge through Chapter 7 bankruptcy include:

• Alimony or child support
• Certain taxes
• Certain criminal restitution orders
• Certain educational benefit overpayments or student loans that you made or a governmental unit guaranteed
• Willful and malicious injuries that you committed to another entity or another person’s property
• Death or personal injury that you caused after operating a motor vehicle under the influence of intoxicating substances such as alcohol and drugs

Chapter 13 Bankruptcy

Chapter 13 has a repayment plan. Thus, you will eventually pay your creditors partially or completely in three or five years. While it may seem unappealing because it is an expensive option, this payment plan offers benefits that Chapter 7 filers have no access to. In particular, you can keep your property, avoid foreclosure, and prevent repossession. Meanwhile, debts that you cannot discharge through Chapter 13 bankruptcy include:

• Certain long-term obligations (such as a home mortgage)
• Alimony or child support
• Certain taxes
• Most government-funded or -guaranteed educational loans or benefit overpayments
• Death or personal injury that you caused by driving while intoxicated or under the influence of drugs
• Restitution or a criminal fine included in a sentence on your conviction of a crime

Relatedly, certain debts are non-dischargeable under chapter 13 if your creditor files a declaration on time. These debts include:

• Money or property obtained under pretenses
• Fraud or defalcation while acting in a fiduciary capacity
• Restitution for damages awarded in a civil case for willful or malicious actions you committed that caused personal injury or death to a person

Protected Assets in Bankruptcy

Some property that you can protect under exemption rules include:

• Homestead: Protect equity up to $25,150 in any real estate that you own and occupy, such as houses, condominiums, co-ops, or permanently affixed real property.
• Personal Property: Exempt up to $5,000 in tools for your trade, such as uniforms, manuals, and inventory and up to $1,000 in appliances, furniture, clothes, pets, and books. You can also protect the health aids that professionals prescribe.
• Insurance: Insurance that you can protect includes health and disability benefits, such as court awards, settlements, and arbitration awards; fraternal benefit society benefits; life insurance; and annuity contract proceeds — granted that your beneficiaries are either your spouse, child, or dependent.
• Benefits and Damages: You can keep any compensation awarded for personal injury, wrongful death, and lost future earnings. You can also keep court-ordered child support payments. Other protected earnings include 75% of disposable earnings or $145 weekly support.
• Retirement: You will not lose any benefits you obtain from the Employee Retirement Income Security Act or an Individual Retirement Account.
• Wildcard Exemptions: Wildcards exempt up to $6,000 in cash or property value and $5,000 in personal property value.

Conclusion

If you intend to file for bankruptcy as a resident consumer of Baltimore, Maryland, your two options are Chapter 7 and Chapter 13. Chapter 7 bankruptcy is the free option, which makes the most sense for those who mostly have property needed to survive and make a living.

Meanwhile, Chapter 13 bankruptcy is an expensive option. It comes with a repayment plan where you will eventually pay back your creditors in a three- or five-year plan. However, these repayment plans can help you avoid losing your home and car.

Regardless of the type of bankruptcy you file, certain assets have protection. Thus, you can rest assured that you can keep all your essential properties while being bankrupt. Be sure to consider your situation before filing either type of bankruptcy.

With offices in Baltimore, Columbia, Towson, Northern Virginia, Westminster, and Dundalk, we’re here to help you with any questions you may have. Contact us, or call our experts at Albers & Associates at (443) 665-8030 to learn how we can aid you with a free consultation.