Columbia MD Bankruptcy Lawyers
How Bankruptcy Works in Maryland
Individuals who have fallen on hard times may be interested in filing for bankruptcy to get a fresh start. Understanding different aspects of bankruptcy law can help you determine whether filing is a good decision.
At Ward & Co., Chtd., our Columbia, MD-based lawyers can help Maryland residents understand the ins and outs of the bankruptcy process. Our attorneys are committed to working with clients to make the process of filing for and navigating bankruptcy streamlined and user-friendly.
What is Bankruptcy?
Bankruptcy is a legal solution individuals and businesses suffering from debt can afford. When you are filing for bankruptcy, you may be able to completely eliminate all of your debt, if not most of it. You can also agree to a payment plan to pay off your debts to creditors over a fixed amount of months.
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If you find yourself in a difficult financial position or swamped by debts you can't feasibly repay, filing for bankruptcy may help. Bankruptcy can:
- Stop foreclosure on your home. While homes are nonexempt from bankruptcy, filing for bankruptcy can give you the time you need to catch up on payments or establish a repayment plan.
- Eliminate most debts. The end-goal of bankruptcy is to allow individuals to ameliorate their financial hardships. Filing for bankruptcy can allow you to eliminate or establish a new payment plan for your existing debts.
- Stop wage garnishment and property repossession. Filing for bankruptcy can protect you from aggressive creditor collection tactics, such as garnishing wages or repossessing your property.
- Allow you to renegotiate payment plans with your creditors. Filing for bankruptcy can allow you to remain in good standing with creditors by renegotiating a new payment plan you can adhere to.
However, bankruptcy isn't a get-out-of jail-free card for financial hardship. Filing for bankruptcy will not:
- Protect you from secured creditors. You'll still owe money to creditors who take out mortgages or loans on property as collateral (think car loans or home mortgages). You may be able to renegotiate a new payment plan, but you'll still owe secured creditors money.
- Wipe out all your debts. Certain types of debts or payments, such as most student loans, child support, and alimony, won't be affected if you file for bankruptcy. Again, it may be possible to work out a new payment plan with the creditors responsible for these debts, but you won't be off the hook.
- Protect your cosigners. If any of your debts involve cosigners, they may be forced to pay debts on your behalf if you file for bankruptcy.
- Stop you from incurring or paying debts after filing. Many people think filing for bankruptcy gives them some sort of grace period before they can incur new debts or have to pay off old ones. While filing for bankruptcy may stop creditors from aggressively pursuing your debts, you're not protected from paying or incurring debts during or after your bankruptcy filing.
Bankruptcy is a considerably involved and complicated process. Working with an experienced attorney can help you understand how filing for bankruptcy will affect your unique circumstances.
Understanding how bankruptcy can affect your finances is only a small part of the overall bankruptcy process. You also need to know which chapter of bankruptcy to file. In the US, there are actually six different chapters of bankruptcy individuals and businesses can file:
- Chapter 7, which individuals can use to liquidate assets to pay off debts
- Chapter 9, which municipalities can use to renegotiate debts
- Chapter 11, which businesses can use to renegotiate debts and reorganize the business
- Chapter 12, which family farmers and fishermen can use to renegotiate or pay off debts
- Chapter 13, which individuals can use to renegotiate debt payments without losing assets to creditors
- Chapter 15, which applies to ancillary and cross-border cases not covered by the other five chapters
Of these six Chapters, only three—7, 11, and 13—are common. These three Chapters apply to a vast majority of bankruptcy cases in Maryland, and you'll probably use one of these three when filing for your bankruptcy.
How Chapter 7 Bankruptcy Works
If you file for a Chapter 7 bankruptcy, a bankruptcy trustee will eliminate most or all of your nonexempt debts. To repay your creditors, the trustee may liquidate (sell) your property.
Bankruptcy trustees are members of the United States Trustee Program (part of the Department of Justice) and play a vital role in both Chapter 7 and Chapter 13 bankruptcies. Essentially, trustees help the individual filing for bankruptcy negotiate debt elimination or repayment with creditors. In Chapter 7 bankruptcies, trustees are responsible for understanding what property you own and how that property can be used to repay creditors.
In a Chapter 7 bankruptcy, you'll work with your attorney to fill out a variety of forms that describe:
- Your income and living expenses
- What debts you owe
- What property you own
- What property you claim is exempt from the bankruptcy process (can't be liquidated by the trustee)
- How you spent money during the previous two years
- Whether you sold or gave away property during the previous two years
Once the trustee confirms this information is accurate, they'll invite you and your creditors to a creditors meeting. During the meeting, you'll work with the trustee and your creditors to liquidate property to pay off debts, or renegotiate your payment plan so you can pay your debts in the future.
It's important to note that most creditors will not value property highly enough to consider its liquidation, and will instead simply forgive debts. However, individuals with valuable property or assets stand to lose a lot in Chapter 7 bankruptcies. Chapter 7 bankruptcies are also typically restricted to lower-income individuals. For these reasons, higher-income individuals who own valuable property usually file for Chapter 13 bankruptcy.
How Chapter 13 Bankruptcy Works
If you're a higher-income individual who owns valuable property, a Chapter 13 bankruptcy may be right for you. To qualify for a Chapter 13 bankruptcy, you need to meet a few requirements:
- Your debts cannot exceed a certain amount. If they do, you must file for an individual Chapter 11 bankruptcy instead.
- You cannot be a business. However, individuals who take on business debt as personal debt can file for Chapter 13 bankruptcy.
- You must have a steady income. Chapter 13 bankruptcies involve renegotiating payment plans with creditors, so you need to make enough money to pay off your debts consistently post-bankruptcy.
As in a Chapter 7 bankruptcy, you'll be appointed a bankruptcy trustee. However, unlike a Chapter 7 bankruptcy, you won't work with the trustee to liquidate your property to pay off debts.
Instead, during the creditors meeting, you'll work with your creditors and trustee to determine how your income and finances can be allocated to pay off your current debts. Certain debts, such as child support or alimony payments, are prioritized. Other debts deemed less important take a back seat but still require payment using disposable income left over after other priority debts are accounted for.
Chapter 13 bankruptcies allow high-income individuals who own valuable property to receive the time they need to pay off priority debts and renegotiate payment plans with creditors. However, neither Chapter 7 nor Chapter 13 bankruptcies are suitable for businesses. That's where Chapter 11 comes into play.
How Chapter 11 Bankruptcy Works
Businesses in difficult financial situations can file for a Chapter 11 bankruptcy. Unlike Chapter 7 and Chapter 13 bankruptcies, no trustee is appointed for a Chapter 11 bankruptcy. Instead, the debtor (in this case, the business or business owner filing for bankruptcy) continues to operate its business as a "debtor in possession." Instead of a trustee, the bankruptcy court in charge of the case will handle how the bankruptcy progresses (the court can choose to appoint a trustee to the case if they see fit).
In Chapter 11 bankruptcies, the bankruptcy court works with the business filing for bankruptcy and its creditors to determine the best path forward. There are two common outcomes to Chapter 11 bankruptcies:
- The creditors request the business be restructured and forgive or renegotiate debts. If the creditors think a business owner is incompetent or has engaged in criminal acts, they can request the business be restructured. Businesses that comply with creditor demands can continue operating.
- The creditors renegotiate new payment plans with the business. This may include selling certain assets or giving creditors a share in the business or its assets.
Chapter 11 bankruptcies allow businesses to renegotiate a fair and equitable repayment or debt forgiveness plan with creditors.
Regardless of which chapter of bankruptcy you intend to file, working with a reputable attorney who understands bankruptcy law is important.
Contact an Experienced Bankruptcy Attorney in Columbia, MD Today!
At Ward & Co., Chtd., our committed attorneys will work with you to help ensure your bankruptcy case goes smoothly. To receive a free consultation from our legal team, contact us online or via phone at (410) 775-5955.