An individual in Rockville, Maryland, who sees no way out of debt can file bankruptcy to lower the amount of money he or she owes. However, they may have to relinquish property to the court depending on the type of bankruptcy. Some debtors hesitate to file because they have concerns about losing their homes.
Mortgages in Chapter 13 bankruptcy
Chapter 13 is a type of bankruptcy that restructures debt, allowing the filer to pay them off slowly. A person submits a bankruptcy payment plan he or she devises to the court, and the court approves or disapproves it. Unlike Chapter 7 bankruptcy, debtors do not have to sell property, so they can keep their homes. In some circumstances, people may make the payments to the original lender, which reduces trustee fees.
However, Chapter 13 requires the debtor to meet income requirements and prove he or she can afford the payments. He or she must also stay current on mortgage payments and catch up arrears within the timeline to avoid foreclosure.
Mortgage exemptions
Homestead exemptions allow debtors to exempt equity for qualifying homes to lower bankruptcy payments. Equity is the difference between the value of the home and the amount owed to the creditor. A debtor often chooses state or federal exemptions, but he or she cannot use both.
The Maryland homestead exemption is $23,675, which equals the federal bankruptcy exemption. However, the homestead must be real property occupied by the owner, and this amount does not double for couples filing jointly.
Maryland currently does not apply a maximum acreage limit to exemption claims. To claim a homestead exemption, the owner must have resided in the state for 40 months. Maryland also allows a $6,000 wild card exemption, which the debtor can use toward real estate.
Most bankruptcy cases are straightforward, but laws can be complex. An attorney may work with a debtor to discuss his or her case and help him or her decide what to do.