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Maryland homeowners considering bankruptcy received some very good news in 2026. A major change in Maryland law dramatically increases the amount of home equity that can be protected in a bankruptcy case.
Effective June 1, 2026, the Maryland homestead exemption increased to $125,000.
For many Maryland homeowners who previously could not consider Chapter 7 bankruptcy because they had too much equity in their homes, this change could make an enormous difference.
When someone files bankruptcy, the law allows that person to protect certain property through what are known as "exemptions."
An exemption does not mean that the debtor receives money from the government. Instead, it determines how much of the debtor's property can be protected from creditors and, importantly in a Chapter 7 bankruptcy, from a bankruptcy trustee.
For homeowners, one of the most important exemptions is the homestead exemption, which protects equity in an owner-occupied residence.
Equity is generally the difference between what your home is worth and what you owe against it.
For example, if your house is worth $400,000 and you owe $325,000 on your mortgage, you have approximately $75,000 in equity.
Under Maryland's new law, that $75,000 may potentially be protected by the new $125,000 homestead exemption.
Before the new law took effect, Maryland's bankruptcy homestead exemption was tied to the federal homestead exemption amount, which was $31,575.
That could create a serious problem for homeowners.
A Maryland homeowner might have substantial credit card debt, medical bills, personal loans, or other unsecured debt and otherwise be an excellent candidate for Chapter 7 bankruptcy. However, if the homeowner had significant unprotected equity in a residence, filing Chapter 7 could potentially put the home at risk.
The new law changes that calculation dramatically.
Under Maryland Code, Courts and Judicial Proceedings § 11-504, an individual debtor may now protect up to $125,000 of qualifying equity in an owner-occupied residence in a bankruptcy proceeding.
That is nearly four times the previous exemption.
Consider a homeowner whose house is worth $450,000. The homeowner owes $350,000 on the mortgage.
That leaves approximately $100,000 in gross equity.
Under the former $31,575 homestead exemption, a significant portion of that equity could potentially have been exposed in a Chapter 7 bankruptcy. Depending upon the circumstances, that could have made Chapter 7 too risky.
Under the new law, however, as much as $125,000 of qualifying equity may be protected.
That means a homeowner who might previously have been forced to consider Chapter 13 or avoid bankruptcy altogether may now be able to file Chapter 7 while protecting the home.
Of course, every case is different. Mortgages, judgment liens, tax liens, ownership interests, costs of sale, and other factors can affect the equity analysis.
No.
This is an especially important limitation.
The statute provides a $125,000 exemption for an individual. However, if multiple individuals in the same bankruptcy proceeding claim the exemption for the same property, the total exemption is still limited to $125,000.
In other words, a married couple filing a joint bankruptcy cannot simply double the exemption to $250,000 for the same residence.
That makes it particularly important for married homeowners to have their equity and ownership interests analyzed before filing bankruptcy.
The new law makes another important change.
Maryland's homestead exemption now specifically includes qualifying residential real property of a settlor that is held in a revocable trust.
This is increasingly important because many Maryland homeowners place their homes into revocable living trusts as part of their estate planning.
Therefore, the mere fact that a qualifying residence has been placed into a revocable trust does not necessarily prevent the homeowner from receiving homestead protection in bankruptcy.
The legislation also repealed Maryland's previous restriction that could prevent an individual from claiming the homestead exemption on a particular property when the debtor or certain family members had successfully claimed the exemption on that property within the previous eight years.
The new law eliminates that restriction.
The General Assembly also built future increases into the law.
Beginning in fiscal year 2028, the homestead exemption amount will be adjusted annually based upon changes in the Consumer Price Index, with the adjusted amount rounded to the nearest $25.
That means the $125,000 exemption should not remain frozen indefinitely as home prices and the cost of living increase.
Not necessarily.
Bankruptcy exemption analysis can be more complicated than simply subtracting the mortgage balance from an estimated home value.
Among other things, an attorney may need to consider:
There are also situations involving property owned as tenants by the entirety in which completely different and potentially much greater protections may be available, depending upon whether debts are individual or joint.
For those reasons, homeowners should not assume that their home is either safe or at risk based solely upon an online home-value estimate.
Maryland has historically provided relatively limited homestead protection compared with some other states.
The increase from $31,575 to $125,000 represents a substantial expansion of the protection available to Maryland homeowners.
For some people, the change may simply provide additional peace of mind.
For others, it could make the difference between being unable to file Chapter 7 and being able to eliminate tens of thousands of dollars in unsecured debt while still keeping their home.
The new law applies to bankruptcy cases filed on or after June 1, 2026.
If you own a home and have previously been told that you have too much equity to file Chapter 7 bankruptcy, it may be worth having your situation reviewed again under the new Maryland homestead exemption.
The law has changed, and for many Maryland homeowners struggling with debt, it is a very significant change.
