Most people who are experiencing financial difficulties file for Chapter 7 bankruptcy. This type of bankruptcy, also known as “straight” or “liquidation” bankruptcy, allows you to erase most of your debts and get a fresh start.
However, there are still non-dischargeable debts like student loans, child support, tax debts, etc. Be that as it may, it’s still a very helpful way to deal with overwhelming debt. But how do you know if you can file for Chapter 7 bankruptcy in Maryland?
A means test to determine if you qualify
The eligibility for Chapter 7 bankruptcy in Maryland is determined through a “means test.” This test allows the court to examine your financial circumstances and decide if you have the ability to repay your debts. Here’s how it works:
- The first step involves comparing your income with the median income for a similarly sized household in Maryland. As of the current status, the median income stands at $81,293. If your income is less than this number, you are generally eligible to file for Chapter 7.
- If your income exceeds the median, don’t lose hope. The means test also considers your allowed expenses and debt payments. If your disposable income, after these deductions, is below a specific limit, you may still qualify for Chapter 7.
Take, for example, a family of four with a combined income slightly above the median. After including their monthly expenses like mortgage, car payments and groceries, they could still qualify for Chapter 7 if their disposable income is low enough.
If ineligible, consider Chapter 13
The bankruptcy court is the guiding authority that assesses your situation. They understand that not everyone can meet the criteria for Chapter 7, which is why there’s an alternative. If you don’t qualify for Chapter 7, Chapter 13 bankruptcy may be an option.
Chapter 13 gives you a chance to create a plan to repay all or part of your debts over three to five years. It’s often a good choice if you have income coming in regularly and want to protect valuable assets, like your home, from being sold to repay your debts.
Know your options
Bankruptcy law is complex, and filing for bankruptcy, regardless of the type, has significant consequences. So, before deciding on your course of action, consider seeking help from a legal professional. They can help you understand your options and guide you toward the best decision for your circumstances.