What Can You Keep When You File for Bankruptcy?

When you think of bankruptcy, you might believe that you are about to lose everything, but that’s not the case. Maryland has protections to protect some of your most important assets, even as you proceed through the bankruptcy process.

What can you keep when you file for bankruptcy? Here is what you need to know about what assets are protected and what might be at risk.

Types of Bankruptcy in Maryland

When filing for personal bankruptcy, you have two options: Chapter 7 and Chapter 13.

Chapter 7 bankruptcy is often the go-to option. This is for people who need a quick and clean way to eliminate most of their unsecured debt, like credit card balances or medical bills. The process involves liquidating non-exempt assets to pay creditors.

In these cases, many people can keep most or all of their belongings if Maryland’s exemption laws cover the value of their assets.

The other option is Chapter 13 bankruptcy. Unlike Chapter 7, Chapter 13 is a debt reorganization plan. Instead of selling assets, you can work out a payment plan to repay your creditors over a period of three to five years.

While you still have to make payments, one of the benefits is that you can keep all of your property. However, you need to stick to the repayment plan.

Maryland Bankruptcy Exemptions

When you file for bankruptcy, your assets are divided into exempt and non-exempt categories. Exempt assets are those you can keep, while non-exempt assets may be sold to pay creditors.

Maryland’s bankruptcy laws have a few exemptions that can protect most of your personal property.

Your Home (Homestead Exemption)

One of the most critical concerns for homeowners filing for bankruptcy is whether they will lose their homes. Maryland offers a homestead exemption. This allows you to protect up to $25,150 in equity if you’re filing alone or $50,300 if you’re filing jointly with a spouse.

So, if your home is worth less than this exemption limit, you will likely keep it. If your home has equity that exceeds this amount, the excess might be used to pay creditors. You still have options to keep the house, especially if you’re filing under Chapter 13.

Personal Property

The state allows you to keep many personal belongings through the personal property exemption. This includes:

• Furniture
• Appliances
• Clothing

For example, you can protect up to $6,000 in personal property if filing individually or $12,000 if filing jointly.

Your Car (Motor Vehicle Exemption)

If you need your car to get to work or take care of family responsibilities, you need to keep your vehicle.

Maryland exempts up to $6,000 in equity for one vehicle. If your car is worth more, you may have to give up the excess value in Chapter 7 bankruptcy. However, if you’re filing for Chapter 13, you can keep the car as long as you keep up with your repayment plan.

Tools of the Trade

You are in luck if your job depends on specific tools or equipment. Maryland offers an exemption for trade tools, such as the tools a mechanic or tradesperson might use for work. You can protect up to $5,000 worth of these items.

Wages and Retirement Accounts

Wages earned after filing for bankruptcy are protected, and retirement accounts such as 401(k)s, IRAs, and pensions are exempt from bankruptcy.

Public Benefits

Those receiving benefits such as Social Security, unemployment, or veterans’ benefits will not be taken in bankruptcy proceedings.

Life Insurance and Annuities

The cash value of a life insurance policy or an annuity is usually safe from creditors. However, your beneficiary must be a family member and not a creditor.

What Might Not Be Exempt?

Some items are not protected. These could include:

• Investment properties or second homes that are not your primary residence
• Luxury items, like expensive jewelry or art collections
• Bank accounts with balances that exceed the exemption limits

If you own property that exceeds the exemption limits, it could be sold to pay off creditors in a Chapter 7 bankruptcy. However, in Chapter 13 bankruptcy, you can keep all of your assets.

What About Businesses?

Yes, businesses can keep their operations depending on the type of bankruptcy they file. With Chapter 7 bankruptcy, the assets are sold to pay off creditors. Also, it will cease to exist afterward. Sole proprietors or partnerships may risk personal asset loss if they personally guarantee their debts.

However, corporations or LLCs can protect the owner’s personal assets.

Chapter 11 bankruptcy is the option for businesses that want to stay open. Under this, the business continues operating while restructuring its debts. This process allows the business to keep its assets, including inventory, equipment, and real estate.

Once again, this is as long as it follows the court-approved repayment plan. The business may need to reorganize operations and negotiate with creditors, but the goal is to return to profitability.

Filing for bankruptcy might be intimidating, but knowing that you can protect many of your most essential assets can give some peace of mind.

If you have questions about the bankruptcy process, Belsky & Horowitz, LLC can help.