Interviewer: Why would you say chapter 13 is more preferable to a chapter 7 case?
James Logan: Chapter 13 has advantages to it. If you want to hold on to a house or a car that you’re behind on the payments, you definitely want to file a chapter 13. If you have debt that you can’t get rid of in a chapter 7, usually IRS or state tax debts, anytime it’s better to file a chapter 13 and pay those off through the plan. The other two main reasons are if you have a lot of assets that we can’t protect in a chapter 7, you would have to file chapter 13, and it’s a very common situation that we’ll get to elderly people who’ve paid their house mortgage down or paid off their house and they’d gone up for credit card debt and we can’t file a chapter 7 for them because the trustee would just sell her house to pay off the debts and clearly that’s a solution that nobody wants. So, in that case, we have to file a chapter 13 to pay off the debts that way. Another common scenario is that you generally make a certain amount of money to file a chapter 7 and if you’re over those limits, you may not be eligible to file a chapter 7 so you’d have to file a chapter 13 and pay off your debts.
The Main Differences Between a Chapter 7 and a Chapter 13 Bankruptcy
Interviewer: What are some of the main differences that people should know about chapter 13 versus chapter 7? What are the things that really set them apart just to summarize on that?
James Logan: The most common reason people file a chapter 13 is because they’re behind in their mortgage and they want to save their home. So, if you’re behind in your mortgage and you want to save your home and there’s an auction coming up soon, really the only way you’re going to do that is by filing the chapter 13 bankruptcy. Chapter 7 is a lot more instant relief. Basically, we file it and it wipes out all your debts and you can move on with your life. The problem with the chapter 7 may be that a lot of times people have assets that we can’t protect in chapter 7. The idea behind chapter 7 is to give you a fresh start.
In the State of Maryland, You’re Allowed to Keep $12,000 with the Personal Property
In Maryland, you’re allowed to keep $12,000 with the personal property and you’re allowed to keep pensions, 401Ks, retirement plans that you have and you’re allowed to keep personal injury settlements, your workers’ comp settlements. So, if you don’t own anything beyond that, then chapter 7 is a great solution for you because it wipes out all your debts and you can move on with your life but many times, people will have houses with equity in them or other assets that we can’t protect in chapter 7 and in that case, we’d have to file a chapter 13.
A Chapter 13 Bankruptcy Can Stop a Foreclosure Even if the Filer Never Signed on the Mortgage
Interviewer: Let’s say I’ve had parents who had their house foreclosed but they recently have passed away, and I was supposed to inherit the house, is it still something that I can save?
James Logan: Absolutely. It’s actually a fairly common situation where the parents have died and one or more of the children are still living in the house. When your parents die, in most cases, the house will be passed to the children and you acquire a legal interest in the house. So, even though your name is not on the mortgage, you still have an interest in the house. By filing a chapter 13, it will stop any foreclosure even though you never signed in the mortgage, you’re not liable on the mortgage that your parents got, you still have an upfront interest in the house to stop the foreclosure and make up the back payments and save the house. So, that’s a fairly common situation for the child who comes in and he’s still living in the house and he wants to know if he can save us and they absolutely can