This bill revises Maryland’s bankruptcy exemption for owner‑occupied residential real property. It expressly treats residential real property owned by a debtor‑settlor in a revocable trust as eligible for the state homestead exemption, replaces the previous federal‑code‑based amount with fixed dollar tiers ($150,000 and $300,000 in specified cases), and establishes annual CPI adjustments beginning in fiscal year 2028.
The change alters who can shield a home in bankruptcy and by how much. It creates a higher exemption for older debtors who are veterans or have a physician‑certified disability, removes certain prior timing and spousal bars and replaces them with an aggregate cap where multiple claimants assert the exemption on the same property.
The bill applies only to filings after its June 1, 2026 effective date and Maryland continues to disallow federal bankruptcy exemptions.
At a Glance
What It Does
The bill expressly includes residential real property held in a revocable trust by the settlor within Maryland’s bankruptcy homestead exemption, sets a two‑tier dollar cap on the exemption ($300,000 and $150,000), caps the total exemption when multiple individuals claim on the same property, and mandates CPI indexing of those caps beginning in FY2028.
Who It Affects
Directly affects individual debtors who own and occupy residential real property (including condominium units, converted manufactured homes, and cooperative shares) and who are settlors of revocable trusts; it also affects creditors, bankruptcy trustees, estate planners, and title professionals who must verify ownership and exemption claims.
Why It Matters
By bringing settlor‑held revocable‑trust residences into the homestead exemption and replacing variable federal amounts with state dollar caps (and indexing), the bill changes pre‑bankruptcy planning incentives and creditor recovery expectations—especially for older veterans and disabled debtors who qualify for the larger cap.
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What This Bill Actually Does
The bill does two things in principle: expand what counts as the debtor’s residential property for Maryland’s homestead exemption, and change how large that exemption can be. First, it says that if a debtor is the settlor of a revocable trust and occupies trust property as a residence, that property can be claimed under Maryland’s owner‑occupied residential exemption.
The bill borrows the statutory definitions of “revocable” and “settlor” from Maryland’s Estates and Trusts provisions, so a trust must be revocable by the settlor without trustee or adverse‑interest consent to qualify under this change.
Second, the bill removes reliance on the federal exemption formula and replaces it with flat state dollar amounts: $150,000 for most individuals and $300,000 for individuals who are at least 60 and either meet Maryland’s statutory definition of veteran or have a physician‑certified disability expected to last at least 12 continuous months. If multiple individuals in the same bankruptcy claim the exemption for the same property, the bill caps the combined exempt amount at $300,000.The statute also changes the prior landscape of timing and joint‑claim rules.
It eliminates the earlier absolute bar that prevented someone (or certain relatives) from claiming the exemption if it had been claimed on that property within the previous eight years and replaces the older prohibitions (including the prior rule barring simultaneous husband‑and‑wife claims) with the new aggregate cap described above. Beginning in fiscal year 2028, the exemption amounts will be adjusted annually for changes in the U.S. CPI (All Urban Consumers) and rounded to the nearest $25.
The act is explicitly prospective—its rules apply only to bankruptcies filed after the law’s effective date—and Maryland continues to prohibit using federal bankruptcy exemptions in place of state exemptions.
The Five Things You Need to Know
The bill explicitly extends the homestead exemption to residential real property the debtor created or contributed to if the property is held in a REVOCABLE trust and the debtor is the settlor (using Estates & Trusts §14.5–103 definitions).
It creates a two‑tier exemption: $300,000 for individuals age 60+ who are either veterans (per Maryland law) or have a physician‑certified disability expected to last at least 12 continuous months, and $150,000 for all other individuals.
When more than one individual in the same bankruptcy claims the exemption on the same property, the combined exemption for that property may not exceed $300,000 (aggregate cap).
The bill removes the prior eight‑year ‘‘successfully claimed’’ bar and the absolute bar on both spouses claiming the exemption together, replacing those limits with the aggregate cap mechanism.
Exemption amounts will be CPI‑adjusted (U.S. CPI All Urban Consumers) starting in FY2028 and rounded to the nearest $25; the law is prospective and takes effect June 1, 2026.
Section-by-Section Breakdown
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Definitions: revocable and settlor (no change)
The bill reproduces the existing statutory definitions of “revocable” and “settlor” from the Estates and Trusts Article. Those definitions matter because the new homestead rule applies only to property held in a trust that is revocable by the settlor without trustee or adverse‑interest consent, and “settlor” includes multiple contributors with pro rata attribution unless another person can revoke or withdraw that portion.
New local definitions for statutory terms used in the exemption
The act inserts two local definitions into §11–504: it defines “disability” as a physical or mental impairment that substantially impedes employment, and imports the Estates & Trusts definitions of “revocable trust” and “settlor.” Those definitions are now part of the bankruptcy exemption section, which narrows interpretive disputes about who qualifies as a settlor or disabled debtor under this exemption.
Inclusion of settlor‑held revocable‑trust residences
This provision adds language that owner‑occupied residential real property includes a settlor’s residential real property that is held in a revocable trust. Practically, this forces trustees, creditors, and courts to treat revocable‑trust ownership queries (title, trust instrument terms, revocability) as central to exemption disputes; proof-of‑occupation and settlor status become routine elements of a homestead claim.
New exemption amounts, aggregate cap, and CPI indexing
The bill replaces the prior federal‑linked calculation with fixed amounts: $150,000 for most individuals and $300,000 for qualifying older veterans or disabled persons. It adds a rule that multiple claimants on the same property in one bankruptcy can’t exempt more than $300,000 in total. It also instructs that the numeric caps are subject to CPI adjustments starting in fiscal year 2028 and rounded to the nearest $25, creating an automatic indexing mechanism.
Removal of certain timing/spousal bars, prospective application, and federal exemption ban remains
The bill brackets out the earlier eight‑year reuse bar and the prohibition on both spouses claiming the same property, replacing those discrete limits with the aggregate cap described above. It keeps Maryland’s statutory prohibition on using federal exemptions in bankruptcy. The act states explicitly that it applies only to cases filed after its effective date (June 1, 2026).
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Every bill creates winners and losers. Here's who stands to gain and who bears the cost.
Who Benefits
- Debtors who are settlors of revocable trusts and occupy the trust property: They can now claim the homestead exemption on trust‑held residences without needing to transfer title out of the trust or unwind trust arrangements.
- Older debtors who are veterans or have long‑term disabilities: The $300,000 tier gives them materially larger protection, reducing the prospect of forced sale during bankruptcy.
- Homeowners who live in converted manufactured homes, condominiums, or cooperative housing: The bill explicitly preserves those forms of owner‑occupied housing within the exemption, now including trust ownership.
- Estate planners and trust attorneys: The statutory inclusion of revocable‑trust‑held residences creates new planning and documentation opportunities to ensure trust instruments and title records support exemption claims.
- Bankruptcy attorneys and debtor advocates: The change provides a clear statutory basis to protect a wider set of residential interests for eligible clients, simplifying some exemption arguments.
Who Bears the Cost
- Unsecured creditors and judgment‑lien holders: The larger caps and inclusion of revocable trust property reduce the asset pool available to satisfy claims, lowering expected recoveries.
- Bankruptcy estate administrators and trustees: Establishing settlor status, revocability, occupation, and disability certification increases administrative and litigation workloads and may raise costs for estate administration.
- Mortgage lenders and secured creditors: Expanded exemption protection could constrain foreclosure outcomes in bankruptcy and complicate workouts where homestead protection reduces equity accessible to creditors.
- State courts and clerks: Expect increased motions, contested hearings, and title‑search demands as creditors challenge settlor status and disputable disability certifications.
- Title companies and record keepers: Greater scrutiny of trust instruments and settlements will increase document review, title exceptions, and potential insurance underwriting complexity.
Key Issues
The Core Tension
The bill pits debtor protection—especially for older veterans and disabled homeowners and settlor‑trust occupants—against creditor recovery and anti‑avoidance concerns: it expands the universe of sheltered residential assets and raises exemption ceilings to protect vulnerable debtors, but in doing so increases the incentive and opportunity to shelter equity in ways that may reduce recoveries for legitimate creditors and prompt litigation over trust form, occupancy, and disability proof.
The bill creates clear advantages for debtors who are settlors of revocable trusts, but the line between legitimate protection and sheltering is thin. Revocable trusts, by definition, leave control with the settlor; under federal bankruptcy law, revocable‑trust assets are often pulled into the bankruptcy estate.
Maryland’s change invites litigation over whether a particular trust is “revocable” in the statutory sense or whether a settlor truly occupies the trust property as a residence. Expect disputes over trust language, recorded deeds, beneficiary powers, and whether third parties held adverse interests exist.
Removing the prior eight‑year bar and the spouse‑claim prohibition while capping aggregate exemptions at $300,000 is a policy trade‑off. The aggregate cap prevents unlimited stacking of claims but does not recreate the prior bright‑line bar that deterred repeated or family‑transferred claims; this may encourage pre‑bankruptcy planning that shifts title into revocable trusts or spreads ownership among relatives to maximize protection up to the cap.
The disability qualification (physician certification of expected 12‑month duration) and the veteran tie create administrable criteria but are also fertile ground for evidentiary fights. Finally, indexing the caps to CPI after FY2028 stabilizes value over time but ties future exemption growth to a volatile metric and creates an ongoing administrative task for the state to compute and publish rounded figures each year.
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