If you live in Maryland and are facing serious credit problems, you might be considering filing for bankruptcy. Federal law changed in 2005, and it is important to be aware how these changes affect anyone considering bankruptcy filing. As you can see below, the steps to filing for bankruptcy in the State of Maryland are complex and best handled by an experienced attorney.
Step One: Counselling & Education
According to the Federal Trade Commission, you must get credit counselling within 180 days before you file for bankruptcy. Counselling must be done by an organization approved by the Department of Justice’s U.S. Trustee Program. Also, you must complete a debtor education course before your debts can be discharged. Debtor education helps you develop a budget, manage money and use credit wisely.
Step Two: Determine If You Qualify For Chapter 7 Or Chapter 13
After counselling, you will have to pass a “means test” to determine if you qualify for filing for Chapter 7. Chapter 7 involves your debt being wiped out with the sale of your non-exempt property or assets. The means test determines if you have enough money to repay at least a portion of your debt. If, for the six months prior to filing, you have an income of $100 or more left over after paying for living expenses, you will probably not qualify for Chapter 7.
Be aware that your living expenses estimates are based on your actual expenditures and the Internal Revenue Service’s (IRS) local and national expense standards. The IRS’s expense standards might be lower than what you actually spend, and this can influence if you qualify for Chapter 7.
Allowable deductions can include:
- Child support payments
- Healthcare costs for sick or disabled family members
- Some school expenses
- Some payments to secured creditors
If your total household income is less than the median family income in the State of Maryland, there is a good chance that your petition for Chapter 7 will be granted. If you are denied Chapter 7, you can still file for Chapter 13 which is a much more rigorous form of bankruptcy.
Image by Chris Potter.Chapter 13 bankruptcy involves a court supervised payment of a percentage of your debt over a period of 36 to 60 months. Your financial activity is under close scrutiny during this repayment period. Any spending on new cars, luxury items or vacations will have to be reduced or eliminated. Any financing of a second car or boat will likely require payment of the replacement value. Finally, if you receive a raise or a bonus during this time you will probably have to divert this towards debt repayment.
Step Three: Gather Data
When filing for bankruptcy, you will have to gather all your relevant financial data and documents. These might include:
- Itemization of current income source
- Last two years history of major financial transactions
- Monthly living expenses
- Secured and unsecured debts
- All assets including property and possessions
- Last two years state and federal income tax returns
- Real estate deeds
- Car titles
- Loan documents
Step Four: Filing The Forms
Once you have completed credit counselling, taken the means test and gathered all the necessary data, you can then proceed with the bankruptcy filing process. This involves filling out a bankruptcy petition and several other forms, called schedules. The schedules ask for information regarding creditors, property, claimed exemptions, co-debtors, income, expenses
and a financial affairs statement. In Maryland, the Chapter 7 filing fee is $274, and you can request to have the fee waived or to pay it in installments. The fee for filing Chapter 13 is $189 and cannot be waived.
The filing process can be very complex and typically involves the help of a bankruptcy attorney. Choosing good legal counsel helps make sure that nothing is overlooked which could threaten the outcome of your petition.
Once you have filed the bankruptcy forms, an automatic stay goes into effect which means creditors cannot contact you or make further claims against your property. If you have filed for Chapter 13, you must begin to make debt payments after filing the forms.
Step Five: Attend Meeting Of Creditors
Once you file for bankruptcy, the court appoints a trustee who assumes legal control of your debts and non-exempt property and assets. In most cases, you will have to go to court to attend a meeting (called the 341 meeting) with the trustee and any creditors that desire to meet with you. This gives creditors a chance to ask any questions and negotiate if there
are any objections. In many circumstances, no creditors attend, and the meeting only lasts 5-15 minutes.
Step Six: Discharge
At the end of the bankruptcy process, all of your debts are discharged, that is, wiped out. Some forms of debt, however, usually cannot be wiped out such as child support debt, student loans or tax debt.
Filing for bankruptcy is a serious matter. It is important that you complete all the steps as required by the law. Having a bankruptcy attorney to assist you can ensure that your filing is taken care of correctly so that you can begin to restore your financial health.
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