When debt becomes overwhelming, there is sometimes no way out on your own. Bankruptcy throws a legal lifesaver to those drowning under unpayable bills and expenses. A clean slate and a fresh start is often the best way for a person to reorganize financially and reestablish a sense of economic security in their life.
But what do bankruptcies cover? There are actually multiple different types of bankruptcy that cover different things. There are two common types of bankruptcy that most people facing debt due to medical bills, job loss, divorce, and other financially-binding situations file. Those are known as Chapter 7 bankruptcy and Chapter 13 bankruptcy.
What Does Chapter 7 Bankruptcy Cover?
Chapter 7 bankruptcy is the most common type of bankruptcy for individuals facing personal debt. This is a “liquidation” type of bankruptcy, meaning that the individual’s assets are sold to cover debt and pay off creditors. The process of paying back debt is called “clearing” or “discharging” debt.
Your bankruptcy attorney can help you evaluate your debts to see which ones are dischargeable in a Chapter 7 bankruptcy. In many cases, Chapter 7 bankruptcies cover debts such as:
- Unpaid credit card bills
- Medical bills
- Car loan balances
- Rent payments
- Utility bills
- Some types of personal loans
- Some government program overpayments (such as Social Security or veterans’ benefits)
- Phone and internet bills
- Collection agency accounts
- Business debts
- Past unpaid taxes
- Some personal injury judgments
- Attorney’s fees
Each case is unique, so it’s important to ask your lawyer what bankruptcies cover in your particular situation. One or more of the types of debt listed above may not be covered by Chapter 7 under your given circumstances.
To be eligible for Chapter 7 bankruptcy, a Maryland court must make the decision that the applying individual has the ability, through any current income and the sale of personal assets, to discharge outstanding debts. This assessment is usually made by comparing the individual’s earnings with the Maryland state average and by making evaluations of any disposable income in the individual’s possession.
Once approved for liquidation bankruptcy, the applicant’s sellable assets (generally not including necessities like one’s home and primary vehicle) can be sold to cover debts such as those listed above.
What Does Chapter 13 Bankruptcy Cover?
Chapter 13 bankruptcy does not involve liquidation. Instead, the individual is allowed to create a payment plan that schedules loan and debt payments over the course of three to five years, in most cases. This is also called a “wage earner’s plan” because it permits individuals to keep their assets and use their regular income to pay off the money they owe to others.
There are certain eligibility requirements for Chapter 13 that do not exist for Chapter 7 bankruptcy. For example, in order to be qualified for Chapter 13 bankruptcy, the total of an individual’s secured and unsecured debts must be no more than $2,750,000 at the date they file for bankruptcy relief. The debtor must also have a reliable source of income and disposable funds that can be used toward the repayment of the debts.
For eligible applicants, there are some advantages to filing Chapter 13 bankruptcy over Chapter 7 bankruptcy. One of those advantages is that there is generally a wider range of debts that are dischargeable under Chapter 13.
In addition to the types of debts covered under Chapter 7, the following types of debt may be dischargeable in a Chapter 13 bankruptcy (but are not dischargeable in a Chapter 7 bankruptcy):
- Debts for willful injury to property (not to a person)
- Debts incurred to pay nondischargeable tax obligations
- Debts resulting from property settlements in a divorce or separation
What Does Bankruptcy Not Cover?
When you file for bankruptcy, there will usually remain a list of debts you are still obligated to pay. Bankruptcies cover a variety of loans and debts, but depending on the type of bankruptcy you file, it may not cover:
- Recent taxes
- Student loans
- Secured loans (ones backed by an asset like a house or car put up as collateral)
- Debt incurred through fraud or other criminal activity
- Spousal and child support
- Certain long-term obligations (like a home loan)
- Debts from a personal injury or wrongful death caused by driving under the influence
- Criminal fines
Again, bankruptcy cases are very much contingent upon the individual’s circumstances. If you have questions about what bankruptcies cover and what they do not cover, it’s recommended that you schedule a free consultation with a qualified Maryland bankruptcy attorney.
Bringing as much information about your debts and current financial standing as you have available is helpful to the lawyer evaluating your case. In addition to questions like “What do bankruptcies cover?”, it’s recommended that you take the time to come up with a list of questions to ask your attorney in advance of your meeting.
How To File for Bankruptcy in Maryland
If you are facing a financial impasse and are not sure where else to turn, you may be ready to file for bankruptcy. Maryland residents who are considering filing for bankruptcy are encouraged to speak with an experienced bankruptcy attorney before making any decisions.
A free case consultation can give you a much better idea about what bankruptcies cover, steps for filing Chapter 7 or Chapter 13 bankruptcy, and your legal options based on your circumstances. The information gained in a free case evaluation at Belsky & Horowitz, LLC can empower you to make the best choice for your future.
Filing for bankruptcy seems like an overwhelming process to those who have never done it before. In fact, this is a highly complex legal procedure that can easily go awry if mishandled. But at Belsky & Horowitz, LLC, we make the process easy. Our decades of experience handling Maryland bankruptcies on behalf of clients has equipped us with the knowledge, experience, and resources to handle even the most complicated cases.
Contact us by phone or online to begin the conversation. A Maryland bankruptcy lawyer will be in touch shortly to schedule your free consultation.