Maryland Median Income Limits
The bankruptcy means test income limits in Maryland are updated every 6 months or so. The current numbers below are for cases filed on or after November 1, 2024 (source). If you have a household size that is bigger than the maximum number below, you would just add $9,900 for each additional household member.
# of People | Annual Income |
---|
1 | $80,278 |
2 | $105,930 |
3 | $124,939 |
4 | $149,759 |
5 | $159,659 |
6 | $169,559 |
7 | $179,459 |
8 | $189,359 |
9 | $199,259 |
Bankruptcy Means Test Explanation
As mentioned earlier, the means test is a document you will fill out at the beginning of your bankruptcy filing process to determine your eligibility and repayment plan for bankruptcy. You will need to report a few things to fill out this form. The first is your income. Here are some things to keep in mind when reporting your income on your Maryland bankruptcy means test document:
- You must report their income even if your spouse is not filing with you. The means test considers the entire household's income, not just the individual filing. There are some exceptions, especially if you are legally separated from your spouse but still living in the same residence.
- Your household income is compared to the mean monthly income of households in Maryland. This determines your eligibility for bankruptcy and what repayment plan you may be considering.
- Some forms of income, namely any Social Security or other retirement income, do not count as income on your means test. Ensure you understand what you do not have to disclose to have the best chance of approval.
- If you have an unstable or variable monthly income, the average of your past six months is used. To find this, you would add each month of income for the past six months together and then divide the sum by 6. The number you end up with is what you would report as your average monthly income.
Chapter 13 Bankruptcy Means Test and Debt Limits
To be able to file for Chapter 13 bankruptcy, there are a few income limits an individual has to meet. First, the individual has to have less than $465,275 of unsecured debt. This is a part of the Chapter 13 debt limit. Unsecured debt is not backed by an asset that can be collateralized. This means that if you could not repay your unsecured debt, there wouldn’t be anything the creditor could repossess to recoup the lost payments. Unsecured debt includes credit card debt, medical bills, utility bills, and more.
Next, an individual cannot have over $1,395,875 in secured debt. Secured debt is debt that is backed by collateral. This can include home mortgages, car loans, and other loans where something can be repossessed to recoup the nonpayment cost.
Other Requirements
Debt limits are not the only requirements to be met when filing for Chapter 13 bankruptcy. There are other requirements, such as:
- Only an individual can apply for Chapter 7 & 13 bankruptcy. Businesses are not eligible for these.
- The individual cannot have had a bankruptcy case dismissed within the previous 180 days. There are exceptions if emergencies or an error caused the dismissal. The court decides on those cases individually.
- The individual cannot have successfully completed a Chapter 13 bankruptcy within the past two years (four years if it was a Chapter 7 bankruptcy). This means that if you went through the bankruptcy process successfully and had some of your debts discharged within this timeframe, you are not eligible and will have to wait for the time to pass.
- The individual has taken the required credit counseling courses. When filing for Chapter 7 or 13 bankruptcy, you must complete two credit education courses with a court-approved debt counselor. Failing to do so would prevent you from eligibility.
- The individual must have filed all tax returns for the previous four years.
- For Chapter 13 bankruptcy, you have enough disposable income to repay the bankruptcy trustee monthly, who will then distribute the payment amongst the various creditors and other fees. If you lack disposable income, the court may decline your case and recommend Chapter 7 bankruptcy.
If you meet these requirements, the court may approve your case. That said, you may consider the pros and cons as well. For example, your credit score and report may be negatively affected.
What Happens If I Pass the Means Test In XXX?
If you pass the means test, you may be eligible for Chapter 7 bankruptcy! A Chapter 7 will discharge your eligible debts and allow you a fresh financial start. You can discharge credit cards, personal loans, and medical debt. The process is around 4-6 months, which is very quick. You may not have to pay anything back, but there is a cost, which is an upfront attorney fee that generally ranges from $1000 to $2500. It also provides automatic stay so your creditors cannot come after you anymore. However, it is a liquidation bankruptcy, so be sure your assets (such as your house and car) are protected under the state exemptions.
Timeframe of Filing Another Bankruptcy
If you filed for bankruptcy in the past and are looking to file again, be sure that the appropriate amount of time has passed. Before you file another chapter of bankruptcy, you may have to wait a few years. Check out the timeframe below:
Chapter Filed Earlier, Chapter to be Filed, Time Restriction
- Chapter 13, Chapter 13, 2 years between filing
- Chapter 7, Chapter 13, 4 years between filing
- Chapter 13, Chapter 7, 6 years between filing
- Chapter 7, Chapter 7, 8 years between filing
Bankruptcy Means Test Specific to Maryland
The means test itself does not change from state to state. However, the test compares your average monthly income to the state’s household average monthly income. Because of this, where you live may change the average income to which your income will be compared.
For example, the means test income levels would not differ between Baltimore and Columbia, but that income limit may vary between Maryland and California.
Options If You Fail the Bankruptcy Means Test in Maryland
If you fail the means test for bankruptcy, you are not eligible for that type. With Chapter 13, failing the means test means you do not have enough disposable income to pay at the end of each month to the bankruptcy trustee. Because of this, the court cannot grant you a Chapter 13 bankruptcy, which may require sizable monthly payments. If you fail the means test for Chapter 7 bankruptcy, you make too much compared to the requirements. You have many other options regardless of why you failed the means test.
Chapter 13 Bankruptcy:
If you were denied for Chapter 7 bankruptcy, you may want to consider filing for Chapter 13. You were likely denied Chapter 7 because you make too much money. Luckily, Chapter 13 bankruptcies rely on individuals making more than they need to help pay off their debts. If you were denied Chapter 13, it may be because you didn’t make enough money to afford monthly payments at the end of each month. Because of this, you may qualify for Chapter 7 bankruptcy. If you were denied one form of bankruptcy, see if you are eligible for the other.
Debt Settlement:
Debt settlement works in a variety of ways. Either you or a company negotiates with your creditors on your behalf until they agree to a lower debt balance that you can then pay off, leaving a portion of your debt forgiven. An example of this may be the following: Say you owe $30,000 in debt. You may approach your creditor and negotiate the amount down to $15,000. Often, especially if you are working with a debt settlement company, you will have created an account that holds a sum of money you are willing to pay immediately. If the creditors agree, you will have $15,000 of forgiven debt once the remaining sum is paid off.
Cons of Debt Settlement
This option has some potential negatives, namely that you tend to have to miss a few payments for your creditors to be willing to negotiate. Not only does this put you at risk of being sued by the creditor, but it also impacts your credit score for up to seven years.
Additionally, there is no legal protection, so if a creditor does not agree to a negotiated payment plan, they may sue you. If a creditor sues you, that may go on your credit report.
There are also potential taxes on the forgiven debt. Whatever debt was forgiven in the settlement may be taxable, and you have to report the canceled debt on your tax return for the year it was canceled. Generally, you may have to report any taxable amount of canceled debt as income. The creditor may send you a 1099-C form you would have to fill out.
Debt Management:
You could also consider a debt management program. Debt management programs are also known as credit counseling. When working with a debt management company, you must report your entire financial situation to the entity. They will then devise a plan that helps you get out of debt as efficiently as possible. They can also help negotiate lower interest rates on any loans or other debt lines you may already have. This can take anywhere from 36-60 months.
The pro is that it may allow you to pay into the principal rather than the increasing interest. So, if you have credit cards with high interest rates and want a less aggressive option, this may be something to look into.
The downside to this option is that you still have to pay off everything you owe so it may be a more expensive option. The good news is that it won’t hurt your credit as much as some of the other options may. However, the accounts included in the program will close which may take a small hit to your credit.
Conclusion
Overall, the means test is just a way to see what forms of debt relief and bankruptcy you may qualify for. Using the means test can help you better understand your financial situation and whether or not bankruptcy is right for you. If you have any questions or want to talk more in-depth, contact a local attorney to set up a free consultation!