At some point in our lives, we all face uncertainty when it comes to our finances. Whether we’re facing debt as a result of a natural disaster or other accident, are having trouble managing credit cards, or have recently been hospitalized and are now dealing with extensive bills, there may come a time where the debt is too overwhelming to handle. If you reach that point, you could benefit from working with a Baltimore bankruptcy lawyer.
According to the U.S. Financial Health Pulse report from 2019, more than 70% of Americans are having some type of financial problems. Employment status, health events, and spending more than what’s being owed are some of the contributing factors to the instability most Americans face financially.
When debt becomes overwhelming, bankruptcy can give a person a fresh start financially. Choosing to file bankruptcy is a big deal, which is why it’s important to understand the implications and potential outcomes. When you work with Belsky, Weinberg & Horowitz, LLC, we’ll guide you through the process and help you determine how best to secure your future.
If you are considering filing for bankruptcy due to financial issues during COVID-19, you may benefit from reading our guide to the COVID-19 bankruptcy laws and procedures which affect Maryland residents.
Understanding the U.S. Bankruptcy Code and Bankruptcy in Maryland
According to the United States Courts, bankruptcy helps individuals who can longer pay their debts. Typically, debt is taken care of in one of two ways: liquidation or reorganization. With liquidation, a person sells their assets to pay back the money they owe. Reorganization gives a debtor time to pay back the money they owe through a court-approved repayment plan.
All bankruptcy cases are handled in federal court under outlines rules in the U.S. Bankruptcy Code. In Maryland, there are bankruptcy courts located within each of the 94 federal judicial districts.
The bankruptcy process is complex, which is why it’s often in a debtor’s best interest to work with an experienced bankruptcy lawyer. When you first meet with your attorney, they’ll help you determine which type of bankruptcy you’ll want to file.
Types of Bankruptcy
While the general goal of bankruptcy is to clear debt, there are six different types that can be filled—all of which work for certain people or businesses in specific circumstances. Let’s start by taking a look at the most commonly filed types—Chapter 7 and Chapter 13.
Chapter 7 Bankruptcy
Also known as liquidation, Chapter 7 bankruptcy is the most common type of bankruptcy for individuals. When someone applies for this type of bankruptcy, a court-appointed trustee oversees the sale of the person’s assets—which can include anything that has value. The money made from the liquidation is used to pay off the creditors. In most cases, the debtor’s home and car are safe from liquidation. If a property is being sold, there may be a short sale.
In the event there is remaining unsecured debt, like from credit cards or medical bills, the amount is typically erased. It’s important to note, however, that some debt, like student loans and taxes, are not forgivable through bankruptcy.
Chapter 7 is only available to those who the court decides don’t make enough money to pay back their debt in any way. A means test is used to compare the debtor’s income to the state average. Finances are also examined to determine if there is disposable income.
Once a person has filed Chapter 7, it stays on their credit report for up to ten years and it can have a negative impact on the score. A person cannot file this type of bankruptcy more than once over a span of eight years.
Chapter 13 Bankruptcy
Where Chapter 7 liquifies debt, Chapter 13 reorganizes it. In other words, when a person is approved to file Chapter 13 bankruptcy the court approves a monthly payment plan so they can pay back a portion of their unsecured debt and all of their secured debt. Most repayment plans happen over a period of three to five years.
This type of bankruptcy gives debtors the chance to keep their assets and catch up on debt without facing significant financial struggles. Under federal law, anyone can file for Chapter 13, so long as their unsecured debt is less than $419,275 and their secured debt is less than $1,257,850.
Filing for Chapter 13 does stay on a credit report; however, it only stays on for seven years. In regard to filing again, a person has to wait at least two years.
In addition to Chapter 7 and Chapter 13, there are also the following types of bankruptcy:
- Chapter 11 Bankruptcy. Chapter 11 is similar to Chapter 13, as it gives debtors time to reorganize and pay off their debt. The difference, however, is that this type of bankruptcy is used by businesses, corporations, and individuals who have too much debt to qualify for Chapter 13.
- Chapter 12 Bankruptcy. Chapter 12 is specifically for family farmers and fishermen. This form of bankruptcy establishes a repayment plan, so the debtor can avoid selling all of their assets or foreclosing on their property. While it is similar to Chapter 13, it has higher debt limits and tends to be more flexible.
- Chapter 15 Bankruptcy. Chapter 15 focuses on international bankruptcy issues and provides foreign debtors with access to U.S. bankruptcy courts.
- Chapter 9 Bankruptcy. As another repayment plant, Chapter 9 allows towns, cities, and school districts to reorganize their debts and pay back what they owe.
If you, as an individual, are looking into filing bankruptcy to secure a better financial future for yourself and your family, it’s likely you’ll either be filing Chapter 7 or Chapter 13. Let’s take a look at some of the reasons you may be considering filing bankruptcy.
Common Reasons for Filing Bankruptcy
While some people may think filing for bankruptcy is the result of bad budgeting or overspending, this is rarely the case. According to the American Bankruptcy Institute, job loss, medical problems, and divorce are the top three contributing factors to filing bankruptcy.
Whether the job market is unstable, or companies are downsizing, it’s likely you know someone who has been terminated from their job for reasons outside their control. While unemployment benefits may be available, it’s unlikely they will cover the necessary expenses and they do not last forever. If a person is struggling to find a job, they could be paying for bills or groceries on credit cards. With high-interest rates, credit card debt can pile up easily and become more than one person or family can handle.
Medical events that leave us hospitalized can also leave us with massive medical debt. Just a few days in the hospital can leave someone with tens of thousands of dollars in bills—even with medical insurance. While may hospitals offer payment plans and charity care, there’s a chance the medical bills could affect a person’s quality of life significantly and become too much to handle.
It’s no secret that divorce is expensive. In the event one partner is saddled with the majority of the debt, they may not be able to handle the payments and may need to turn to bankruptcy for help.
No matter what circumstances resulted in your need for financial help and debt relief, our Baltimore bankruptcy attorney can look into your situation and help you decide how best to proceed. While you are allowed to file for bankruptcy without a lawyer, the process will be easier to manage with proper legal guidance.
Alternative Options to Bankruptcy in Maryland
Depending on your situation, an attorney or financial advisor may be able to recommend alternatives to bankruptcy. You may be able to consolidate your debt, work with creditors to create a repayment plan, create a debt management plan, or default on debt.
Consolidating debt involves combining debts. This can be done by taking out a debt consolidation loan, transferring debt to a low-interest credit card, or consolidating with a home equity line. With debt consolidation, debt is easier to manage as it’s in one place.
If creditors are willing to work with you, you may be able to come to an agreement for a modified payment plan. This is often appealing to creditors because they know you are willing to pay back your debt.
Some credit card companies offer low transfer rates to new customers. When you transfer debt to a low-interest card, you’ll typically pay less interest over the repayment terms. You’ll be able to establish a monthly payment, and you won’t have to worry about debt collectors.
When a debtor has equity in their home, a home equity line can help consolidate debt into a low interest and potentially tax-deductible loan. It’s important to be cautious with this option, however, because lenders can have the right to repossess the property if the debtor defaults on payments.
Contact Belsky, Weinberg & Horowitz, LLC
Deciding if bankruptcy is right for you can be challenging. That’s why it’s important to consult a Baltimore bankruptcy lawyer to learn about your viable rights and options. In the event you decide to file for bankruptcy, we can guide you through the process and ensure your most important assets are protected.
It’s important to note that the type of bankruptcy you file affects how long you’ll be dealing with the process. Depending on your options, you could have the matter resolved in months or years. Either way, if filing is the right decision for you, you’ll be on the path to a more financially secure future. Contact Belsky, Weinberg & Horowitz, LLC today to learn more.