Chapter 7 is the bankruptcy most people mean when they say “bankruptcy.” It gets called a “straight” bankruptcy or a liquidation, and it is the chapter individuals and small business owners in Maryland use most. Qualifying debts are discharged, meaning legally erased, and it usually happens four to six months after filing with no repayment plan to complete.
Do you qualify: the means test
Chapter 7 is fast and asks nothing back, so federal law limits who can use it. The limit is the means test.
Step one compares your household income against the median for a Maryland household of the same size, using figures the U.S. Trustee Program updates periodically. Below the median, you generally qualify. Above it, you are not automatically disqualified. Being over the median creates a rebuttable presumption of abuse under 11 U.S.C. § 707(b)(2), and a longer calculation of your actual expenses may overcome it. Plenty of people who assume they earn too much for Chapter 7 turn out to qualify once that second step is done properly. Current income figures sit on the U.S. Trustee Program’s means testing page.
Two things about Chapter 7 surprise people. There is no debt ceiling. Chapter 13 has debt limits, and their existence creates a widespread assumption that Chapter 7 has them too, but it does not, and no amount of debt is too large for a Chapter 7 filing. Business debt can also take you outside the means test altogether. If more than half of what you owe is non-consumer debt, the test does not apply to you. Where your debts are a mix of personal and business obligations that falls under that halfway mark, it applies normally.
What you keep, and what the trustee takes
The court appoints a trustee to administer your case. That trustee reviews your schedules, questions you under oath about your petition, and takes control of any non-exempt property to sell and distribute to creditors.
“Non-exempt” is the word doing the work. Maryland’s exemptions protect categories of property from liquidation, and most individual filers keep their household goods, clothing, tools of their trade, and retirement accounts. Note that you have to use Maryland’s exemptions, because the federal bankruptcy exemptions are not available to Maryland filers.
The homestead exemption changed substantially this year. Effective June 1, 2026, Maryland protects $150,000 of equity in a home for an individual, rising to $300,000 for someone at least 60 years old who is a veteran or has a qualifying disability. Where more than one person claims the exemption on the same property, the combined claims are capped at $300,000. The figure will start adjusting with the Consumer Price Index in fiscal year 2028. (2026 Md. Laws, ch. 400 (S.B. 939).) If you have read an older article quoting a figure in the twenty or thirty thousands, that was the law before June 1, 2026.
Whether Chapter 7 lets you keep a home or a financed car comes down to the arithmetic of your own situation. How much equity you hold, whether that equity fits inside the exemption, and whether you are current on the loan. If you have significant equity, or you have fallen behind on a mortgage and need to catch up over time, Chapter 13 is often the better tool. Get advice on this before choosing a chapter, because it is the decision that matters most.
Protection begins immediately
When your petition is filed, an automatic stay takes effect and most creditors must stop collecting at once. That covers collection calls, wage garnishment, repossession, and pending foreclosure proceedings. Certain matters continue regardless, most commonly child support and alimony, and a creditor can ask the court to lift the stay in specific circumstances.
What the process requires of you
Federal law asks three things of every individual filer.
- An approved credit counseling course, before you file (11 U.S.C. § 109(h)).
- Attendance at the meeting of creditors, known as the “341 meeting,” where the trustee questions you. Most Chapter 7 filers never appear before a judge.
- An approved financial management course, after filing (11 U.S.C. § 111).
Both courses are short and available online or by telephone, and they can usually be knocked out in a single day. Our process timeline sets out what happens when.
What a discharge does not cover
A Chapter 7 discharge wipes out most pre-petition debts, but 11 U.S.C. § 523 carves out several categories. Child support and alimony survive it. So do most tax debts, debts arising from fraud or intentional wrongdoing, and student loans, the last of which are dischargeable only on a showing of undue hardship. That is a demanding standard. Our bankruptcy FAQs go through these in more detail.
Talk to a Baltimore bankruptcy attorney
Jan Berlage offers a free initial consultation to look at your income, your property and your goals, and to tell you plainly whether Chapter 7 is the right route. Call (410) 752-9300 or use the contact form on this page.