Maryland Bankruptcy Exemptions: State vs Federal

You live in Prince George’s or Montgomery County, and you have been reading about bankruptcy exemptions online. Half of what you find talks about the “federal exemptions,” and you can’t tell whether any of it applies to you.

It mostly doesn’t. If you live in Maryland, you use Maryland’s exemption list, plus a few protections in federal bankruptcy law that apply everywhere. Here is what that list covers and where Maryland filers in Greenbelt need to be careful.

Can I use the federal exemptions if I live in Maryland?

No. An exemption is a law that lets you keep property out of reach of the bankruptcy trustee, the officer who looks for property to sell for creditors. Federal bankruptcy law has its own list, but it lets each state opt out, and Maryland did.

Maryland law says a debtor domiciled in Maryland, meaning someone whose permanent home is here, is not entitled to the federal list. DC is different, because DC residents can choose between two lists. For how exemptions work in general and how DC’s choice plays out, see protecting assets in bankruptcy.

Exemptions protect equity, not the whole value. Equity is what the property is worth on the day you file, minus what you owe on it. A car worth a lot with a loan almost as large has very little equity to protect.

How much of my home does Maryland protect?

Maryland’s homestead exemption protects your equity in a home you own and live in, including a condo or a co-op unit, up to a set amount. That amount is tied to the federal homestead figure and is adjusted periodically.

It is a modest amount compared with what many homes in Montgomery and Prince George’s counties are worth. If your equity is well above the limit, a Chapter 7 trustee could sell the house, so this is the first number I check for a homeowner.

Two limits catch couples and families. In a joint case, only one spouse can claim the homestead exemption. And you can’t claim it on a property if you, or a close relative such as a spouse, parent, child or sibling, successfully claimed it on that same property in a bankruptcy within the past eight years.

If the house has more equity than Maryland protects, Chapter 13 is often the way to keep it. See whether to file Chapter 13 in Maryland.

What does Maryland’s wildcard cover?

Maryland has two catch-all exemptions, often called wildcards, because you can apply them to whatever needs protecting.

• Cash or any property. The first covers cash or property of any kind up to a set amount. A small amount of money in a bank account is protected automatically, and it counts toward this same limit.
• Personal property in bankruptcy. The second applies only in a bankruptcy case and covers personal property, meaning anything other than real estate, up to a set amount.

People use the wildcards for bank balances, a tax refund that hasn’t arrived yet and, very often, a car. Maryland’s exemption list has no separate category for a car, so equity in your vehicle usually has to be covered by a wildcard.

Are my retirement accounts protected?

Generally, yes. Maryland law protects retirement plans that qualify under federal tax law, and federal bankruptcy law separately protects tax-exempt retirement funds no matter which state’s list you use.

That covers 401(k)s, 403(b)s, the Thrift Savings Plan (TSP), pensions and IRAs. IRAs have a federal cap, but it is high enough that it rarely matters, and money rolled over from an employer plan doesn’t count toward it. For the details, see retirement accounts and the TSP in bankruptcy.

What if my spouse and I own the house together?

This is one of the most important protections in Maryland. When a married couple owns property as tenants by the entirety, a form of joint ownership available only to spouses, creditors of only one spouse generally can’t reach it.

Here is why it matters. If only one of you owes the credit cards or the medical bills, and only that spouse files, the Maryland bankruptcy court in Greenbelt has held that the trustee can’t sell entireties property to pay that spouse’s individual creditors.

It does not protect against joint debts. If you both signed for a debt, like a joint credit card or a loan you co-signed, that creditor can still reach the property, and a trustee can administer it for creditors you owe together. Check your deed for the words “tenants by the entirety,” and see whether your spouse has to file.

What about furniture, clothing and work tools?

Household goods. Maryland protects household furnishings, appliances, clothing, books, pets and similar items kept for personal or family use, up to a set amount.

Tools of the trade. Clothing, books, tools, instruments and appliances you need for your trade or profession are protected up to a set amount. Items you hold for sale or lease, like inventory, don’t count.

Health aids. Professionally prescribed health aids for you or your dependents are protected without a dollar limit.

Ordinary used furniture and clothing are rarely worth enough to matter. The limits come into play with valuable collections, expensive equipment or business inventory.

I moved to Maryland recently. Which exemptions do I use?

It depends on how long you have lived here. Federal bankruptcy law looks back two years. If Maryland has been your home for the full 730 days before you file, you use Maryland’s list.

If you moved within that period, you use the exemptions of the state where you lived for most of the 180 days before that two-year window. That can mean a Maryland resident filing in Greenbelt uses Virginia’s list or DC’s list, depending on where you lived before.

There is a fallback. If the lookback points to a state whose exemptions only protect its own residents, and that leaves you with no exemptions at all, federal law lets you use the federal list. Whether that happens depends on the other state’s law, so I check it case by case.

Separately, where you file depends on where you have lived recently, which is a different test. See where to file if you have moved within the region.

What should I do right now?

If you live in Maryland and own a home, a car with equity, savings or a retirement account, call me at (202) 448-5136 before you file anything or move any money. Have a rough list of what you own, what you owe on it and when you moved to Maryland.

The consultation is free. I will tell you which exemptions apply, what they protect and whether Chapter 7 or Chapter 13 keeps more of what you have.

I file Maryland cases at the Greenbelt courthouse, which handles Prince George’s, Montgomery and the other counties assigned to the Greenbelt division. Don’t wait. The exemption plan is easier to build before the case is filed than after.