When Congress enacted the bankruptcy laws they created federal bankruptcy exemptions while at the same time, giving states the opportunity to decide if they want to use federal exemptions or create their own. A little less than half of the states allow filers to use either the federal bankruptcy exemptions or the state exemptions to protect their real property and personal property. Maryland requires filers who have lived in the state for at least 2 years to use the state exemptions. This means that to protect your property you will need to claim Maryland’s bankruptcy exemptions. Although you can’t use the federal bankruptcy exemptions contained in the Bankruptcy Code, you will be able to use the federal nonbankruptcy exemptions. The nonbankruptcy exemptions allow you to protect retirement accounts that are typically linked to a government job.
Written by Attorney Karra Kingston.
Updated January 5, 2022
What Are Maryland Bankruptcy Exemptions and Why Are They Important in Chapter 7 Bankruptcy?
Filing for bankruptcy is never an easy decision. If you’re thinking about filing bankruptcy, you've likely researched the process on the internet. Often searches about bankruptcy on the internet tend to provide misleading information. A common untruthful piece of information that people find on the internet relating to bankruptcy is that if you file bankruptcy your property will be taken away from you. This is far from true.
Congress understands that people need to meet a basic standard of living, so they created bankruptcy exemptions to allow you to protect your property while being afforded the bankruptcy protections. Bankruptcy exemptions give you the ability to file bankruptcy and keep certain property so the bankruptcy trustee can’t sell it for the benefit of your creditors.
The Maryland bankruptcy exemptions allow you to keep your personal items so you won’t be left without a bed to sleep in or a table to eat on. Keep in mind, this is not to say you’re allowed to keep expensive jewelry, furs, luxury cars, or any other luxury items that the law doesn't deem a necessity.
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Does Maryland Allow the Use of Federal Bankruptcy Exemptions?
When Congress enacted the bankruptcy laws they created federal bankruptcy exemptions while at the same time, giving states the opportunity to decide if they want to use federal exemptions or create their own. A little less than half of the states allow filers to use either the federal bankruptcy exemptions or the state exemptions to protect their real property and personal property.
Maryland requires filers who've lived in the state for at least two years to use the state exemptions. This means that to protect your property you will need to claim Maryland’s bankruptcy exemptions. Although you can’t use the federal bankruptcy exemptions contained in the Bankruptcy Code, you will be able to use the federal nonbankruptcy exemptions. The nonbankruptcy exemptions allow you to protect retirement accounts that are typically linked to a government job.
You will find what property you can keep in the Maryland Code, Courts and Judicial proceedings Section 11-504. Below, you will find a list of Maryland exemptions to help you determine which property is protected in Maryland. As you begin your bankruptcy case you'll need to list all of your property and exempt it by using Maryland’s exemptions. A bankruptcy attorney can help you if you are unsure of how to proceed.
Important Maryland Bankruptcy Exemptions:
Real Property Exemptions: Maryland Homestead Exemptions
Since it’s a relatively new addition to the Maryland exemptions, many people are surprised to learn that there is a Maryland homestead exemption. The Maryland homestead exemption only applies in bankruptcy cases and even then it’s only available if the filer (or certain relatives of the filer) didn’t successfully claim the exemption in the eight years before the bankruptcy case is filed.
The amount of the Maryland homestead exemption tracks the amount of the homestead exemption under the federal bankruptcy exemptions, currently set at $25,150. The federal bankruptcy exemptions are adjusted for inflation every three years, with the next adjustment due in 2022. Maryland’s homestead exemption will adjust accordingly at that time. The Maryland homestead exemption can't be doubled by a married couple filing a joint bankruptcy case.
Personal Property Exemptions:
Tools of the trade, including apparel, books, tools, instruments, or appliances are exempt up to a total value of $5,000 as long as they are necessary for the trade or profession. This exemption doesn't cover inventory.
Health aids, professionally prescribed to the debtor or the debtor’s dependent are protected. There is no limit to this exemption.
Household goods and household furnishings (including appliances), clothes, books, pets, and other personal items are exempt up to a total value of $1,000.
Wildcard exemption: Maryland has a wildcard exemption protecting cash or property of any kind up to $6,000 in value. In a bankruptcy case, an additional wildcard exemption of up to $5,000 can be applied to personal property of any kind.
A debtor’s net recovery (as that term is described in the statute) of money payable in the event of sickness, accident, injury, or death (including compensation for loss of future earnings) is exempt without limit. However, disability benefits are not protected from judgments arising out of necessities contracted for after the disability occurred.
Child support received or to be received by the debtor is exempt without limit. Alimony received or to be received by the debtor is protected to the same extent as wages.
A debtor’s beneficial interest in any trust property that is protected from creditors under § 14.5-511 of the Estates and Trusts Article in the Maryland Code is protected.
Earned and Unpaid Wages:
These vary depending on the county you are filing for bankruptcy in.
Caroline, Kent, Queen Anne’s and Worcester counties — greater of 75% of actual wages or 30 times the minimum wage limit set by the U.S. federal government
All other counties in Maryland the exemption is either 75% or $145 per week whichever is greater. - Com. Law §15-601.1
Retirement funds are generally exempt. Any retirement plans deemed by the IRS as a tax-deferred can be fully protected with an exemption. Thus, creditors can’t go after it. Some examples include traditional and Roth IRAs, 401(k), 403(bs), profit sharing, money purchase plans.
State employees can also fully exempt their pension plans
Deceased Baltimore police officers
State Police- MD Code Ann.
Public Assistance - The following can be exempt so none of these assets will be liquidated:
Baltimore Police death benefits
Crime victims' compensation
Life insurance or annuity contract proceeds when the beneficiary is the insured’s dependent, child, or spouse is fully exempt. Ins. 16-111(a)
Filing Chapter 7 Bankruptcy
If you're confused about how to apply these Maryland exemptions to your bankruptcy case, you may want to speak with a bankruptcy attorney to get some legal advice. Maryland law can be confusing for people who have never seen it before. A Maryland bankruptcy attorney can guide you in the right direction and help you decide if Chapter 7 bankruptcy or Chapter 13 bankruptcy is the right decision for you. Many bankruptcy lawyers provide clients with free consultations.
If a lawyer doesn't fit into your budget, don’t worry! Upsolve has free bankruptcy tools to help you file for bankruptcy on your own.