New Maryland Bankruptcy Law

On October 1st many changes to Maryland law became effective as a result of legislation passed last session. 

The major change to MD Courts & Judicial Proceedings Article section 11-504 is the addition of a “homestead” exemption.  Maryland’s new exemption allows a bankruptcy debtor with owner-occupied residential property, to exempt a dollar amount of equity in their home that is determined “under 11 U.S.C. section 522(D)(1), adjusted in accordance with 11 U.S.C. section 104.”  Additionally, the exemption places limitations on by whom and when the exemption can be taken; if it has been claimed “successfully” within eight years prior to a bankruptcy filing by the individual, their “spouse, child, child’s spouse, parent, sibling, grandparent or grandchild,” the exemption is not available and further “may not be claimed by both a husband and wife in the same bankruptcy proceeding.”  There has been some discussion regarding 4th Circuit case law that may trump the statutes limitations on use by both a husband and wife.  See Cheeseman v. Nachman, 656 F.2d 60 (4th Cir. 1981).  Some practioners even believe issues of due process and equal protection are raised as to the limitations on subsequent use of the exemption. 

Until 2010 Maryland debtors were not afforded an exemption for equity in their home through use of a true homestead exemption.  Instead, debtors utilized a combination of section 11-504(b)(5) and, in bankruptcy, section 11-504(f).  These subsections allocated to a debtor, “[c]ash or property of any kind equilavent in value to $6,000” and “the debtor’s aggregate interest, not to exceed $5,000 in value, in real property or personal property,” respectively.  In instances of Tenants by the Entireties (TbyE) property, Maryland debtors have been afforded an unlimited exemption for the value of TbyE property, by case law, not by statute.  See Sumy v. Schlossberg, 777 F.2d 921 (4th Cir. 1985).  However, even in a TbyE situation, a homestead exemption could be beneficial to debtors which hold TbyE property but also joint debts with their spouse. 

What exactly is the amount of the exemption?  Section 11-504 directs us to the Bankruptcy Code for this computation but of course, it is not that easy.  I give credit to Brett Weiss of Chung & Press, LLC who did a terrific job on the MSBA Consumer Bankruptcy listserv of enumerating this calculation.  11 U.S.C. section 522(d)(1) provides for $15,00, adjusted triennially for COLA under 11 U.S.C. section 104 with the most recent increases made on April 1, 2010, the current homestead exemption in Maryland $21,625.00.