Hard-working people may find themselves in dire financial straits for a variety of reasons: illness, an accident, job loss, divorce or other unforeseen expenses that mount up. With the recent damage to the economy from the coronavirus, it has been even harder for many people to get ahead of their financial obligations.
If you are one of the many Americans struggling to keep their head above water these days, you have options, including bankruptcy. Some people resist filing for bankruptcy, believing that it should be a last resort, but that resistance is misplaced. The federal government created bankruptcy protection specifically to give Americans the ability to get back on their feet financially without having to deplete all their assets.
If circumstances beyond your control have placed you in a difficult financial position, use the tools you have been given to build a strong financial future. Bankruptcy is not the end of your financial story; it is just a way to turn the page. Learn more below about how bankruptcy can give you a fresh start. To speak with a Maryland bankruptcy attorney about your specific circumstances, contact Jim Liang to request a free consultation. Jim is not just a bankruptcy attorney. He is also a CPA and tax attorney. Jim works with clients to carefully review their entire financial situation and best options.
Your circumstances will dictate what type of bankruptcy is right for you. The most common are Chapter 7 and Chapter 13 bankruptcy. These are “consumer bankruptcies,” for people whose debt is from personal, family, or household expenses, not business.
Chapter 7 is known as “fresh start” bankruptcy. It wipes out most of your debt within about four months. To qualify for Chapter 7 bankruptcy, you must pass a “means test.” The first part of the means test involves determining whether your average gross income for the previous six months is less than the median income in your state for a household of the same size. If it is, you qualify.
If your income exceeds the state median, your bankruptcy attorney will determine if you have enough disposable income to pay your debts. If you have too much disposable income, you will not qualify for Chapter 7 bankruptcy, but you may be eligible for Chapter 13.
Chapter 13 is also called “wage earners’” bankruptcy. In a Chapter 13 bankruptcy, you make monthly payments to the bankruptcy trustee in your case. Those funds are used to pay off a portion of your debts over three to five years according to a plan approved by the bankruptcy court. If you successfully complete the plan, your remaining debt is discharged.
Many people prefer Chapter 7 bankruptcy because the process is quicker—about four to six months. However, Chapter 13 bankruptcy may be a good option for people who do not qualify for Chapter 7 or who want to keep an expensive asset, like a house or car, that they could not keep in a Chapter 7 case.
Bankruptcy allows you to discharge, or wipe out, debt. Credit card debt and medical debt are two common reasons that people need to seek bankruptcy protection. Fortunately, medical debt and credit card bills can be discharged in bankruptcy, no matter how much you owe. Most other types of debt that is not secured by collateral can be discharged as well, such as personal loans and payday loans.
Although a Chapter 7 bankruptcy wipes out most types of unsecured debt, there are some kinds of debt that cannot be discharged. They include:
It is important to discuss all your debt with your bankruptcy attorney to understand what can, and cannot, be discharged.
Because bankruptcy is designed to help you get back on your feet financially, it does not require you to deplete all of your assets. Exemptions allow you to protect certain property from being taken to repay your creditors in a Chapter 7 case, and they reduce the amount you will have to pay your creditors under a Chapter 13 plan.
Maryland exemptions allow you to keep up to $23,675 in equity in your homestead; $1,000 in clothing and household goods; and $5,000 in tools of your trade. There is no Maryland vehicle exemption (and Maryland does not recognize federal exemptions), but you can use a “wildcard” exemption to keep a vehicle valued at $6,000 or less. In addition, you can exempt most pension and retirement accounts.
Most Chapter 7 cases end up being “no-asset” cases, meaning that after applying exemptions, there are no non-exempt assets for the bankruptcy trustee to sell to pay your creditors. In a no-asset case, you can keep all your property.
Many people who consider filing for bankruptcy are concerned about whether they can discharge income tax debt. The answer is complicated. Tax debt must meet five criteria to be dischargeable: the tax assessment must be at least 240 days old; the taxes must have been due at least three years ago; the tax return must have been timely filed at least two years ago; the tax return must not have been fraudulent; and the taxpayer must not have committed tax evasion.
The tax question is complicated further by the fact that the IRS may file a document called a Substitute for a Return (SFR) on a taxpayer’s behalf. It is unclear how an SFR affects the dischargeability of income taxes; courts have disagreed on this issue.
This is one reason why it is so helpful to have a bankruptcy attorney who is also a tax attorney and CPA. Attorney Jim Liang has a comprehensive understanding of tax issues that many bankruptcy attorneys lack.
If you are considering filing for bankruptcy in Maryland, contact Jim Liang. Jim will review your financial situation and explain the bankruptcy filing options available to you. Jim can:
✓ Conduct the bankruptcy means test to determine which chapter you should file under
✓ Help you to maximize your exemptions so that you can keep as many assets as possible
✓ Review any tax issues related to your bankruptcy
Don’t delay your financial fresh start. Contact Jim Liang to schedule a free consultation to review your financial situation and options regarding bankruptcy.