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Towson Maryland Bankruptcy Legal Blog

Bankruptcy may help a person eliminate debt

Maryland residents have a couple of options to help them get out of debt. The first method is to ask a creditor to forgive a debt or put a debtor on an alternate payment plan. However, there is no guarantee that a creditor will agree to do either of these things. There is also a chance that an individual will have to pay taxes on any portion of a debt that is forgiven.

The other option that a debtor may have is to file for Chapter 7 bankruptcy. Filing for bankruptcy allows someone to reduce or eliminate a debt balance, which can make it easier to save money. It is possible for an individual to start rebuilding his or her credit as soon as a case has been resolved. By having debts discharged through bankruptcy, a borrower is likely to have a lower debt-to-income ratio.

How debt reorganization can solve financial issues

Those with overwhelming debts will understand the feeling of not knowing which debt to tackle first. When you know that you cannot afford to pay all of your debt repayment obligations, it becomes a matter of prioritization. But when you have a wide range of debts that are all subject to differing rates of interest, creating an effective debt repayment strategy can be very difficult to do.

This is why debt reorganization is such a great option for many debtors. It can help them to simplify their debts so that they feel less of a burden, but it can also help to minimize interest rates and reduce additional fines. One of the ways that debts can be reorganized is through Chapter 13 bankruptcy.

Eliminating student loan debt through bankruptcy

Maryland residents may be able to get relief from student loan debt by filing for bankruptcy. To do so, an individual would need to show that paying these loans constitutes an undue hardship. Most courts will look to the Brunner test to determine if a debtor is eligible to have student loan balances discharged. There are three criteria that need to be met for a person to pass the Brunner test.

First, an individual must show that he or she lacks the funds necessary to both make student loan payments and maintain a reasonable lifestyle. Second, it must be shown that this will be true for the duration of a student loan's term. Finally, a debtor must prove that there was a good faith effort made to repay the outstanding balance. It is important to note that there could be serious negative consequences to filing for bankruptcy even if a student loan debt is wiped away.

Bankruptcy and credit scores

Lots of Maryland residents struggle with debt. While many realize that bankruptcy is an option, some are reluctant to pursue this for fear that it will cause further damage to their credit scores.

While Chapter 7 bankruptcies can stay on a credit report for up to 10 years, Chapter 13 bankruptcies may appear on a credit report for as little as seven years. However, businesses and individuals who review credit reports are often more concerned about recent credit history than old information. If a person has established a strong credit history since the bankruptcy, someone reviewing their credit report may give much greater weight to recent positive entries.

New law protects disabled veterans in bankruptcy

For military veterans in Maryland, the transition to civilian life can be difficult, especially on a financial level. This is particularly true for disabled veterans who must rely on military benefits to support their life. Medical bills and personal expenses can leave people feeling trapped amid skyrocketing debt. Indeed, the numbers bear this out. Across the country, 15% of all filers for both Chapter 7 and Chapter 13 personal bankruptcy are service veterans. This is disproportionate to veterans' share of the overall population, which sits at 10%. In 2017 alone, over 125,000 veterans filed for bankruptcy across the country.

In the past, veterans' disability benefits received no particular protection under bankruptcy law, unlike Social Security Disability benefits. These benefits, issued by the Department of Veterans Affairs or the Department of Defense, could be used to determine the disposable income of the individual filing for bankruptcy. This meant that these benefits were potentially exposed to creditors. In order to file for Chapter 7 bankruptcy, people must fall below a certain income threshold. For Chapter 13 bankruptcy, the filer's disposable income is used to determine a payment plan that can persist for years. Therefore, disabled veterans were at a particular disadvantage, even compared to other people receiving different types of disability benefits.

Bankruptcy rate increasing drastically among seniors

The number of seniors who are filing bankruptcy in Maryland and across the country has been rising starkly in recent years. In most of the cases, the seniors filing for bankruptcy protection made less money than the population at large. Among senior households that filed for bankruptcy during the year 2016, 78% had less than the median annual income. In that year, bankruptcy filings by people 65 years old or older accounted for 12% of the total filings; that figure in 1991 was only 2%.

There are a number of factors that have led to the increase in bankruptcy filings by older Americans. Wages have remained steady despite increases due to inflation, unions have lost power, and pension plans are less reliable. The rise in the cost of medical care, too, has significantly impacted the financial standing of older Americans, who need health care more often than their younger counterparts. Another major factor is the increase in financial predators, who market credit cards and other debt instruments to seniors even after they've just filed bankruptcy.

The protection of an automatic stay in Chapter 13 bankruptcy

Most people who file for bankruptcy do so because their financial circumstances leave them with very few alternative options. Some people have to file after their debt slowly increases month after month for a protracted amount of time.

Other people can have a sudden need for bankruptcy protections, such as when they incur large amounts of debt in a short amount of time, possibly due to a catastrophic medical event or accident. Regardless of why you find yourself considering Chapter 13 bankruptcy, you will likely benefit from one of its most important protections, known as the automatic stay.

Determining the right time to file for bankruptcy

In Maryland and across the United States, people experiencing heavy debt may want to file for Chapter 7 bankruptcy. Chapter 7 and Chapter 13 offer two types of bankruptcy for people facing serious financial challenges. A person who files Chapter 7 bankruptcy liquidates all unsecured debts, which means that the debtor no longer owes money to their creditors.

Chapter 7 bankruptcy may also include any non-exempt equity the person may have in a property or vehicle for the purpose of paying back creditors. The entire procedure is completed within three to six months. However, a person must take a "means" test before filing. The first half of the test considers the debtor's earnings and compares them to the average income of similar households. A person who is living below the median has the option to file.

Student loan debt and bankruptcy

Student loan debt may be a major factor in some Maryland bankruptcy filings even though those obligations generally cannot be discharged. A study by the company LendEDU found that almost one-third of people who filed for Chapter 7 bankruptcy had outstanding student loans. Almost half of the total debt of that group on average was student loans. This means that even after these consumers file for bankruptcy, they still must pay off a substantial part of their debt load.

The study only looked at Chapter 7 filers and not people filing for Chapter 13 bankruptcy. With a Chapter 13 filing, people make an arrangement to pay off their debts over a period of three or five years. People with student loan debt who file for bankruptcy may have significant other obligations, such as credit cards and medical bills. They may then use the money they would otherwise have used for those debts to put toward their student loans.

Chapter 7 bankruptcy can help clear debts and ease worries

Overwhelming debt is a common problem for Maryland residents. Those who are facing this issue might function under negative preconceived notions about bankruptcy. For many, bankruptcy is a useful strategy for moving forward without being weighed down by immense debt. Some individuals who have filed for Chapter 7 bankruptcy tout the process as one of the smartest things they have ever done.

Concerns about bankruptcy are many. Still, according to those who successfully filed, the overall benefits of Chapter 7 are undeniable. Fear can be mitigated by eliminating medical debt, credit card balances and more. The freedom from debt lets people restart their lives. Contrary to what some may believe, some filers can rebuild their credit relatively quickly.

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