Chapter 13 bankruptcy is filed in federal bankruptcy court in the flier's home state, but each state has its own rules concerning exemptions, or property that you can keep when filing for bankruptcy.
This type of bankruptcy allows a debtor to repay creditors according to their disposable income, or money that is left over after essential bills are paid. Debtors can keep nearly all of their property unless they have substantial assets than can be liquidated to help to satisfy their debts.
This is where state exemptions can make the difference between keeping or surrendering property in a Chapter 13 bankruptcy case.
How do exemptions work?
Exemptions are essential assets that you are allowed to keep no matter how much debt that you need to repay. The exemptions are broken down into categories. While some states simply follow the federally mandated exemptions in bankruptcy cases, other states allow their own exemptions to be used.
For example, the federal homestead exemption for equity in your home is nearly $24000. This means that this amount of your equity is protected from creditors' claims.
If your home is worth $200,000 but you owe $180,000 on your mortgage, your home is safe from liquidation to pay creditors. However, if the mortgage is only $150,000, You must either surrender your home or pay the remaining $26,000 in unprotected equity to your creditors.
Maryland is one of the states that follow the federal exemption for home equity. However, Maryland has some state exemptions that provide additional protection for a debtor's assets.
What are some of the Maryland state exemptions that differ from federal exemptions?
Exemptions related to personal property are the most varied between federal and Maryland state exemptions. The federal exemptions concerning personal property are most specific concerning the amount that is exempt for individual items.
For example, you are allowed to keep up to $3775 in equity in your vehicle and up to $12,625 in aggregate value for other personal possessions. However, the value of each individual possession can't exceed $600. This places some higher-priced personal items beyond the protection of exemption.
Maryland doesn't provide a specific exemption for a vehicle, and the aggregate amount for personal items in less than the federal exemption.
However, Maryland's "wild card " exemption offers a total of $11,000 in exemption for any personal property. The only limitation on a specific item is that you are limited to keeping $6000 in cash. Any other individual item has no value restriction, so you can technically save a single item that is valued at $11000 or less.
Maryland also offers a $5000 "tools of the trade" exemption for items needed for your work. the federal exemption is only $2375. You also get an extra $1000 exemption for personal property such as appliances and clothing in Maryland, with no restriction of the value of individual items.
If you're filing for chapter 13 bankruptcy on your own in Maryland, you can save additional assets by informing yourself of every Maryland exemption.
However, filing for bankruptcy is complicated and requires understanding of legal terms. If you can hire a bankruptcy attorney to lead you through this difficult time, you may be able to save even more assets. Always go with a professional if you can, especially when it relates to law.