Chapter 7 Bankruptcy - Wipe out eligible debts
Chapter 7 bankruptcy (Federal Law 11USC) can allow you to wipe out (discharge) all eligible unsecured debts such as credit cards, unsecured loans, legal bills, medical bills, etc. An unsecured debt is one that is not backed by an asset (collateral).
Examples:
1) A car loan is considered to be a secured debt because if the debt is not repaid, the car can be repossessed or liquidated.
2) Credit card debt is typically unsecured; that is, the credit was given without collateral.
**IMPORTANT: Once you have hired an attorney, creditors are no longer legally allowed to call and harass you regarding debt.
Am I Eligible for Chapter 7 Bankruptcy?
Chapter 7 Means Test
Chapter 7 bankruptcy eligibility in Maryland anad DC is determined using a two-part test called the "means test". The first part of the test determines whether you fall below the median income for your state based upon the number of people in your household. If you pass this part of the test, you are qualified to file for Chapter 7. The table below shows the current figures used to determine if you are below the median income. To pass the first part of the "means test", your annual income as well as average monthly income of the last six months must not exceed the specified value for your household size.
(Cases Filed On and After November 1, 2012)
MARYLAND
| Household Size | Single |
2 |
3 |
4 |
5 |
6 |
| Annual Median Income | $57,088 | $72,191 | $85,438 | $106,707 | $114,207 | $121,707 |
| Average Monthly Income | $4,757 | $6,016 | $7,120 | $8,892 | $9,517 | $10,142 |
DISTRICT OF COLUMBIA
| Household Size | Single |
2 |
3 |
4 |
| Annual Median Income | $49,168 | $80,298 | $80,298 | $80,298 |
| Average Monthly Income | $4,097 | $6,692 | $6,692 | $6,692 |
***Median Income for DC is the same for any household size greater than one.
If your income exceeds the values above given your household size, you can still qualify for Chapter 7 relief. The next phase of the "means test" examines your disposable income, which is the amount of your income that remains AFTER "allowed" monthly expenses by the IRS are subtracted. For example, if you are single and earn $60,000 per year, but $20,000 per year of your expenses is "allowed", you would qualify because your disposable income is less than $57,088. In Maryland and DC, monthly allowable expenses vary by metropolitan area. Generally speaking, expenses such as mortgage or rent, vehicle payments, and food are "allowable" expenses, but there are limitations as to how much of these expenses are "allowable".
Special Circumstances
Because "allowable" expenses are calculated based upon average values taken throughout Maryland or DC, there is often inherent unfairness associated with this process. For example, if you live in an affluent area in Maryland where the average mortgage is $3000/month, you may not be able to exclude all of your mortgage when determining your disposable income. This is because there are many less wealthy areas in Maryland that reduce the average state-wide mortgage. Although we have encountered such issues, we are often able to work with the trustee in resolving such problems by arguing “special circumstances". There are other “special circumstances" that may enable you to qualify for Chapter 7 depending upon your situation - this is why you should not assume that you are not qualified, and you should call our experienced bankruptcy attorneys for a free consultation.
Will I Lose All of My Assets?
Chapter 7 bankruptcy is known as a "liquidation" bankruptcy. Despite what many people think, this does not mean that you will have to surrender or sell all of your existing assets. Certain assets are protected by law and are exempt from liquidated (exempt assets). In Maryland, $11,000 of any assets can be kept, and $1000 of household goods can be kept. Additionally, roughly $23,000 of your home equity is exempt. The exact amount of equity that is protected rises with inflation based upon federal home equity exemption. The items below are some of the assets that can be exempt to a certain degree.
- Motor vehicles
- Household goods
- Clothing
- Jewlery
- Pensions
- Tools of trade
- Household appliances
- Home equity
- Accumulated public benefits
- College tuition savings accounts
- Alimony and Child Support
Joint Assets
If you are married and share assets with your spouse, these assets are exempt from liquidation, provided you are not filing for joint bankruptcy. Joint assets cannot be used to satisfy individual debts. For example, if your home is owned by both you and your spouse, 100% of the equity is exempt.
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