How much home equity can you protect in a Maryland bankruptcy?

For those dealing with unsustainable levels of debt compounded by lower-than-average household income, Chapter 7 bankruptcy can be a critical source of financial relief. Chapter 7 proceedings allow people to discharge unsecured debts like medical debt and credit card balances without having to complete a repayment period first, as is necessary in Chapter 13 bankruptcy.

Quite a few people who might qualify for Chapter 7 bankruptcy in Maryland may put off filing because they have heard stories about bankruptcy that make them worry about the impact it could have on their life. One of the more pervasive myths about Chapter 7 bankruptcy, also known as liquidation bankruptcy, is that those who filed don’t get to retain any of their personal property. That is not true.

While it is true that the courts can order you to liquidate some of your assets before you receive a discharge, they won’t require you to get rid of everything you own. You have the right to exempt certain property from liquidation or sale in order to repay your creditors. That includes some of the value you’ve accrued in your home. 

How bankruptcy exemptions work

When you file a petition for bankruptcy, you typically have to submit information about your assets and financial resources to the courts. Certain assets are exempt, which means that the courts will not require that you sell or liquidate them in order to repay creditors before you receive a discharge. ERISA benefits, a certain amount of life insurance, some clothing and even home furnishings are among the exemptions available.

There are both federal and state exemptions available, although Maryland does not allow those who file bankruptcy to claim the federal exemptions. You will need to use the state exemptions if you move forward with Chapter 7 bankruptcy in Maryland.

How much real estate value can you exempt in Maryland?

Those filing Chapter 7 bankruptcy can protect a portion of the equity they’ve accumulated in their home. If the amount of equity they have exceeds the current exemption, the courts may require them to refinance the property and pay some of the accumulated equity to creditors before they receive a gift card.

Currently, those seeking Chapter 7 protections in Maryland can exempt up to $25,150 in home equity. Spouses filing jointly do not have the option of doubling this amount.