We discussed in the previous post the importance of bankruptcy exemptions and what an asset with a secured debt is valued for bankruptcy purposes. In Chapter 7, a trustee is appointed, among other things, to review the bankruptcy paperwork and conduct a 341 meeting to determine if the debtor has any non-exempt assets that the trustee can sell and use the proceeds to pay off the debtor’s creditors. Maryland has many exemptions that allow a debtor to keep property, and in many cases, the exemptions are sufficient to protect all of the debtor’s property, which allows the person filing for bankruptcy to truly get a fresh start.
The Bankruptcy Estate
When a debtor files for bankruptcy, all of the debtor’s rights and property become part of what’s called the bankruptcy estate, which is comprised of “all legal or equitable interests of the debtor in property as of the commencement of the case.” 11 U.S.C. § 541. This provision is very broad, and not only includes property that the debtor owns, but also includes any claims or right to property that the debtor may have. However, a debtor has the right to use Chapter 7 exemptions to protect different kinds of property.
The Chapter 7 Trustee
In Chapter 7, a trustee is appointed by the U.S. Department of Justice, U.S. Trustee’s Office, and a Chapter 7 trustee has various different duties and powers. Importantly, a Chapter 7 trustee has all of the rights of the debtor as well as additional rights. This means that if a debtor owns property, a Chapter 7 trustee has a right to that property. However, Chapter 7 exemptions allow a debtor to protect different kinds of property from the reach of a Chapter 7 trustee, such as owner-occupied residential real property, funds in a bank account, household goods and furniture, clothing, etc. One of the roles of a bankruptcy attorney is to analyze the applicable exemptions available and determine how to use these exemptions.
Maryland Bankruptcy Exemptions
Maryland has chosen to use its own Chapter 7 exemptions, and they are codified in various different sections of the Maryland Code. There are also some Federal exemptions that apply in Maryland as well. These exemptions include:
- $25,150 for owner-occupied residential real property
- $5,000 for personal property
- $6,000 for property of any kind
- $1,000 for household goods and furniture
- $5,000 for tools of trade
- Unlimited exemption for qualified retirement plan
- Unlimited exemption for pension benefits for state employees
- Unlimited exemption for social security benefits
- Unlimited exemption for life insurance proceeds payable to a dependent
- Unlimited exemption for money payable in the event of death, sickness, or accident
- Unlimited exemption for property owned as tenancy by the entirety for individual creditors
There are many additional Chapter 7 exemptions in Maryland, and these are some of the most common. Many of these exemptions are doubled if a married couple files for bankruptcy.
Chapter 7 Exemptions – Examples
One of the most common questions that Steiner Law Group clients ask us is “can I keep my car and my house in Chapter 7?” Most of the time, the answer is yes because Chapter 7 exemptions can often be used to protect equity in a house and a car.
Equity in a home
If a home is worth $300,000 and the mortgage on home is $275,000, this leaves $25,000 of equity in the home. The $25,150 owner-occupied residential real property Chapter 7 exemption in Maryland allows the homeowner to protect the equity in the home in Chapter 7. If the home is underwater, which means that the amount of the mortgage is more than what the home is worth, no exemption is necessary because the home has no value in bankruptcy.
Equity in cars
Many times, cars are underwater, which means that the amount owed on a car is more than what the car is worth. If this is the case, the car has no value in Chapter 7, and no exemption is necessary to protect the car. If the car does have some equity, the $5,000 personal property exemption of the $6,000 wildcard exemption are examples of Chapter 7 exemptions that can be used to protect the car in bankruptcy.
Many times, Steiner Law Group has helped clients who have cashed out their retirement accounts to pay down some of their debt. Under Maryland law and its Chapter 7 exemptions, retirement accounts are completely exempt in bankruptcy, and filing for bankruptcy sooner would have allowed our clients to keep their retirement accounts.
Personal injury settlement
Steiner Law Group has also helped clients who have been injured in car accidents to protect the settlement in bankruptcy through a Chapter 7 exemption. Maryland allows money payable in event of death, sickness or accident to be completely exempted in bankruptcy. However, if the injured person also has a claim for lost wages, that exemption would not protect those funds, and a careful review of the other Maryland Chapter 7 exemptions available may be able to protect this part of the personal injury settlement.
Know Your Options
Steiner Law Group has helped many Baltimore residents file for Chapter 7 bankruptcy and use Chapter 7 exemptions to protect their property from being liquidated by a Chapter 7 trustee. If you have questions about Chapter 7 exemptions and bankruptcy, please call us at (410) 670-7060 to schedule a free consultation to talk about what options are available.