Maryland Debt Relief: Your Guide to State Laws and Managing Debt

The state of Maryland, known for its blue crabs, historic Annapolis, the Baltimore Ravens football team and more than 7,700 miles of shoreline on the Chesapeake Bay and the Atlantic Ocean, is home to more than 6 million people.

As of 2017, median household income in the state was estimated at $80,776, second only to the District of Columbia at $82,372 and much higher than the national median household income of $60,336. The unemployment rate in the state was 3.8% in March 2019, according to the Bureau of Labor Statistics, which ranks the state at the 28th lowest for unemployment.

In spite of the high income and low unemployment levels in Maryland, the average per capita credit card debt in the state is $3,910. The state ranks as the second-highest in the country for student loan debt and the fourth-highest for credit card debt and for mortgage debt.

In this article we’ll look at debt collection rules, payday lending laws and Maryland debt relief options, as well as debt consolidation in Maryland. In addition, we’ll offer tips about how to tackle debt in Maryland.

• Debt in Maryland: At a glance
• Debt collection in Maryland
• Responding to collection letters
• Understanding your state’s statute of limitations
• Maryland debt relief programs
• Payday lending laws in Maryland
• Tips to tackle debt in Maryland
• Filing for bankruptcy in Maryland

Debt in Maryland: At a glance

Debt collection in Maryland

If you find yourself with unpaid bills, including credit card debt, medical bills or past-due loan payments for your education, car or home, you could be receiving written notices and phone calls from debt collectors. Each state has different rules about the debt collection process, so it’s important to understand your rights and responsibilities in the context of those rules.

Debt collection: In Maryland, as in other states, your creditors are likely to charge a late payment fee when you miss a monthly payment. In some cases, your interest rate can be increased. Unpaid bills will also hurt your credit score. After several missed payments, the bills will be turned over to an internal collections department at the financial institution that issued the credit or to an outside collections agency working for them.

Sometimes creditors opt to sell your debt to an independent collections agency who will then attempt to have you pay them in order to clear your credit report. Eventually, if you don’t make arrangements to pay the balance, the creditor and/or the collection agency can seek a legal action against you.

Debt collection laws: The Fair Debt Collections Practices Act (FDCPA) is a federal law that established rules to regulate the conduct of third-party debt collectors. In Maryland, legislators passed a law to extend the regulations of the FDCPA to cover your original creditor in the state. In other words, if you didn’t pay a credit card bill, FDCPA regulations cover both the financial institution that originally issued you the credit card, as well as the debt collection agency that is now attempting to collect the debt.

Other provisions in Maryland regulate how much debt collectors can take from you to satisfy a judgment and what assets you are legally able to protect from creditors. These provisions can help you understand your position if you’re planning to negotiate with creditors.

• Your property: Maryland allows you to exempt up to $5,000 of equity in your home and your car. Your home equity is the value of your home minus the balance you owe on your mortgage. To determine your car’s equity, find out the current market value of your car and subtract the payoff balance. It’s possible that all of your car could be exempt, depending on its value.
• Your bank account. A balance of up to $6,000 in your bank account is protected from creditors.
• Your paycheck. If a judgment is upheld against you, a designated amount can be pulled from your paycheck until the debt is paid in full. In Maryland, 75% of your wages are protected from creditors after mandatory deductions for taxes and Social Security are taken. However, other deductions for insurance, a medical savings account and retirement contributions are considered part of your disposable income.

Responding to collection letters

If you receive a phone call from a creditor or a collection agency, federal law states that you must be sent a written notice within five days. The notice should include the amount you owe, the name of the financial institution or business to whom you owe the debt and what to do you if you think you don’t owe the debt.

Although it may tempting to ignore phone calls and letters about your debt, it’s best to address them as soon as possible. If you don’t owe the debt, you need to follow up immediately on the information you’ve been given about how to dispute the debt.

If you do owe the money, it’s best to pay the debt as soon as you can to avoid accumulating additional late fees and eventually damaging your credit. If you don’t have the money to pay the debt, you can ask the debt collector about a payment plan. Make sure you get the payment plan in writing.

If you are having difficulty getting the creditor to agree to a payment plan, you can contact Consumer Credit Counseling Services of Maryland (CCSMD), a nonprofit organization that may be able to help you with a debt management program. Call CCCSMD at 800-642-2227 or visit www.cccsmd.org.

Federal law, which in Maryland applies to both third-party collection agencies and your original creditors, controls debt collector activities. Debt collectors must make calls during reasonable hours, cannot contact you at work, and cannot accuse you of criminal activity or threaten violence. They also must respect your privacy and not advertise the fact that you owe a debt.

If you have a complaint about collections practices, contact the Maryland Attorney General’s Consumer Protection Division The Consumer Protection hotline numbers are 410-528-8662 or toll-free at 888-743-0023.

Understanding your state’s statute of limitations

Each state has its own statute of limitations on how long creditors have to pursue an unpaid debt in court. For example, if you have an old medical bill in Maryland, the creditor cannot sue you once three years have passed since your last payment.

Keep in mind that even if the statute of limitations has passed for your particular type of debt, the creditor can still send you letters and call you to request repayment. The creditor just can’t get a court judgment against you once the statute of limitations has passed.

Just because the statute of limitations has passed, however, doesn’t mean they can no longer pursue for debts or that the debts will fall off your credit report. Unpaid debts will remain on your credit report for seven years regardless of the statute of limitations on that type of debt.

And that’s why it’s important to be cautious before making a payment on an old debt that is time-barred. A debt collector may try to convince you to establish a payment plan, but if you do make a payment, that will reset the clock on the statute of limitations and leave you open to a lawsuit for the debt. If you know that your debt is past the statute of limitations and a creditor continues to insist you start a repayment plan, you can seek legal help, write a “cease and desist” letter that requests the creditor to stop communicating with you, or seek the advice of a credit counselor.

Maryland debt relief programs

If you are having trouble managing your bills or have accumulated too much debt, there are organizations in Maryland that can help you review your options. Many of them will establish a debt management plan for you to get out of debt for a small fee and others can provide financial counseling and resources to file a complaint against a creditor, if necessary, often at no charge.

For example, the nonprofit Consumer Credit Counseling Services of Maryland provides debt repayment solutions, student loan counseling and general financial counseling. The Maryland Department of Labor, Licensing and Regulation provides information about debt management services, how to check on whether a debt management provider is licensed and a place to file a complaint against a creditor or a predator lender. The U.S. Department of Justice also has a list of approved credit counselors that help consumers in Maryland.

For options available nationwide, check out one of these firms.

Payday lending laws in Maryland

Payday loans, which are short-term loans that are meant to be repaid with your next paycheck, are available in Maryland but with some restrictions. While Maryland does not have specific laws that make payday loans legal or illegal, lending restrictions in place do affect payday loans.

The state government mandates that any loan for an amount under $25,000 must meet the regulation for maximum interest rates. For example, on a loan for $2,000 or less, the maximum allowable interest rate is 2.75% per month or 33% annually on the first $1,000 and 2% per month or 24% annually on the rest of the loan. For loans larger than $2,000, the maximum allowable interest rate is also 2% per month or 24% on the full amount of the loan. Under Maryland, even a post-dated check can be considered a loan.

Payday loans can be a costly way to pay a bill and frequently result in a cycle of high-interest debt. Alternatives to payday loans include talking with your creditor to see if you can arrange a payment plan, meeting with a credit counselor, researching government assistance programs or taking out a small loan from a local bank or credit union at a lower interest rate, if you qualify.

Tips to tackle Maryland debt

Whether you’ve considered a payday loan, are generally concerned about managing your debt or simply would like the relief of living debt-free, there are multiple options to evaluate that could help you reduce or eliminate your debt. Debt consolidation in Maryland is one possibility.

Consolidate your debt

Debt consolidation offers the possibility of having just one creditor to pay each month and can often save you money on interest payments over time. In Maryland, the state government offers information about debt management plans, which nonprofit credit counselors can organize for you. These debt relief agencies can negotiate with creditors on your behalf, and, typically for a small fee, pay each of your creditors an agreed-upon amount each month out of your debt management payment until your debts are paid in full.

However, you need to carefully choose a debt relief organization because there are some predatory companies that could damage your finances. A debt management plan is best if you owe multiple creditors and have average or poor credit, but it can also initially lower your credit score until you finish the program.

An alternative to a debt management plan is to take out a personal loan. In Maryland, 30.7% of personal loans in 2018 were taken out for debt consolidation and 18.6% were used for credit card refinancing, according to a LendingTree study. A personal loan can be a good solution because you can group several debts into one payment at a fixed rate that is typically lower than a credit card interest rate. However, you will need to meet the lender’s qualifications for your credit and income. The interest rate depends in part on your credit, so be certain to compare a personal loan option with other choices. Additionally, if you miss a payment, this could hurt your credit as well.

Home equity line of credit or loan

If you’re a homeowner, you may be able to borrow the equity in your home to pay off other debts. A home equity line of credit or a home equity loan typically has a lower interest rate than other forms of debt except for your primary mortgage, but the amount you can borrow will be limited to the maximum percent of your home value that a lender allows. You’ll also need to qualify for the loan based on your credit profile, income and assets. While borrowing against your home can save money on interest, you are putting your home at risk if you can’t make the payments.

Refinance

Another way to tackle debt is to refinance your car loan or your mortgage. Depending on the amount you owe on your car or your home and your interest rate, you may be able to lower your payments on these two major expenses or shorten the loan term to eliminate these debts faster. If those payments are lower, you’ll have more disposable income to direct toward paying off other debt.

One more possibility, if you have enough equity in your home, is cash-out refinancing. In this case, you would increase your mortgage balance when you refinance and use the cash above your current loan balance to pay off other debts. But beware: Just like with the home equity loan option, you’re putting your home at risk if you can’t make your mortgage payments. You also run the risk of having a lower profit if you need to sell your home later. Borrowers typically need good credit and a strong financial profile to qualify for a cash-out refinance.

Use a balance transfer card

Another way to reduce your debt and accelerate repayment is a balance transfer credit card. Generally, a balance transfer credit card allows you to transfer the debt from a high-interest credit card to one with a low rate or even a 0% interest rate for a specific time period, typically 12 to 21 months.

While this can be a good option if you have one or two credit cards with a balance and a high interest rate, you may not be offered a credit limit high enough to consolidate all of your credit card debt. Typically, you’ll need very good credit to qualify for a balance transfer credit card. If you can pay off the balance in full before the interest rate resets, this can be a good way to reduce your debt. However, if you don’t repay it on time, you could end up paying a higher interest rate or even possibly a penalty, so read the offer carefully before applying.

Personal debt management plan

One more option for debt relief in Maryland is a do-it-yourself debt repayment plan. Start by contacting your creditors to see if you can work with them to restructure your debt. You can write a budget, create your own repayment plan and tackle each debt one at a time. Make sure you don’t take on new debt and that you pay at least the minimum on all debt while paying as much as possible to eliminate the balance on one debt at a time.

Filing for bankruptcy in Maryland

While bankruptcy is typically the last resort for consumers, in some cases this is the best scenario. If you can’t see a way out of repaying your debts or you are experiencing a medical issue or job loss that is severely affecting your ability to work your way out of debt, you may want to consider bankruptcy.

A LendingTree study found that while a bankruptcy stays on your credit report for at least seven years, that doesn’t mean you can’t improve your credit over time and regain access to a mortgage, car loan or credit card. In fact, the study found that 75% of people with a bankruptcy had a credit score of 640 or higher within five years, a number that generally makes people eligible for new credit.

The two most common types of bankruptcy are Chapter 7 and Chapter 13, each with different requirements. Chapter 7 bankruptcy requires you to sell your assets to pay your creditors, which then gives you a clean slate to rebuild your credit. Chapter 13 bankruptcy allows you to keep your assets, but you must undergo credit counseling and have a job so that you can make payments to your creditors.

While bankruptcy can help you eliminate debt, the long-term consequences to your credit can be damaging.

In Maryland, you can learn more about filing for bankruptcy from the federal bankruptcy court’s judicial district in the state. The Debtor Assistance Project provides a free one-on-one session with a volunteer bankruptcy attorney so you can discuss your individual circumstances before hiring an attorney.

The bottom line

Whether you’re having difficulty paying your debt now or feel you could be getting in over your head, there are resources available to Maryland residents that can provide some relief. Explore the options available to you and understand the rules about debt collection to make an informed decision about the best way to handle a debt crisis or to get on a path to financial freedom.

The information in this article is accurate as of the date of publishing.