Bankruptcy comes in many forms, and two of the most common types of cases in Michigan are Chapter 7 and Chapter 13. Both involve a discharge of qualifying debt, alleviating the financial struggles that drag you down and cause you to miss opportunities. Another reason these proceedings are popular among debtors is that a person can file as an individual, and married couples may opt to file a joint petition. As such, Chapter 7 or Chapter 13 bankruptcy might be a suitable choice that benefits your entire family. When your case is complete, you emerge debt-free.
However, the process is very different when considering the legal path to wiping out your debt. From the very beginning, there are strict rules to qualify under the US Bankruptcy Code. Chapter 7 and Chapter 13 cases have a profound effect on creditors, so the laws aim to help those debtors who truly need it. Fortunately, you may have some choice in your future despite the rigid rules. Therefore, it is wise to discuss your situation with a Michigan bankruptcy attorney to determine your eligibility criteria for filing for bankruptcy in Michigan.
How to Qualify for Chapter 7 Bankruptcy
There are two important requirements to be eligible to file Chapter 7 bankruptcy:
- You automatically qualify if your earnings are less than the state median income level for Michigan. This amount is adjusted to reflect your household size.
- If you do not automatically qualify, you may be eligible through the Means Test. This analysis starts with your income and then adjusts it to account for monthly expenditures. The reduction of your earnings could allow you to qualify to file for Chapter 7.
If you qualify, you can eliminate most unsecured debt through Chapter 7 bankruptcy. There are some that you cannot discharge, including alimony, child support, and taxes. Still, this positive outcome comes with a caveat. Your assets are subject to liquidation, meaning the bankruptcy trustee can sell real estate and personal property to satisfy debt to creditors. You can take advantage of exemptions to protect assets. Plus, the trustee often chooses not to sell because the profit would not be worthwhile.
Eligibility Criteria for Chapter 13
When you file for Chapter 13 bankruptcy, there is no liquidation. You can keep assets through the bankruptcy process, making this type of case an attractive option if you do not want to risk losing them. Instead of paying creditors through the sale of property, you satisfy your debt through a debt repayment plan. As a result, the main eligibility rule for Chapter 13 is that you must have a job because this will be your source of income to pay under the plan.
When developing the debt repayment plan, your debts are restructured and reduced. You will end up paying much less than the total amount you owe to each creditor. The debt repayment plan is in effect for 3 to 5 years, during which you may monthly payments. At the end of a Chapter 13 case, your qualifying debts are discharged, including:
- Credit cards, gas station cards, and related accounts;
- Medical debt from nonpayment of your share, after insurance;
- Lines of credit; and,
- Personal loans.
Comparing Your Bankruptcy Options
Reviewing some background about Chapter 7 and Chapter 13 is helpful, but it is also important to take a look at how these cases measure up to each other. Eligibility for Chapter 7 is strict in terms of the income criteria and Means Test, and the bar is set rather low as far as your earnings. Many filers will not qualify because they make too much, but you can still file for Chapter 13. If you have significant assets to protect, Chapter 13 might be a wise option to avoid liquidation in Chapter 7.
Additional factors when comparing Chapter 7 and Chapter 13 include:
- Because of the debt repayment plan terms, a Chapter 13 case will last at least 3 to 5 years. A Chapter 7 case can be concluded in a few months, usually 4 to 6.
- A Chapter 7 bankruptcy petition costs $338, whereas Chapter 13 includes a filing fee of $313.
- A Chapter 13 bankruptcy remains on your credit report for 7 years following the date of filing. For a Chapter 7 case, your credit report will reflect bankruptcy for 10 years.
Do’s and Don’ts Before Filing
With both types of bankruptcy, there are some preparations you need to undertake. The credit counselling course you must take is one essential requirement that you need to complete within 180 days beforehand. However, some other points are crucial because they involve the dos and Don’ts of your activities before filing for Chapter 7 or Chapter 13.
- Do continue to pay your mortgage if you can.
- Don’t file too early. If filing Chapter 7, you must wait 8 years to file another or 6 years for Chapter 13. The waiting period for filing a Chapter 13 case is 2 years to file the same case and 4 years for Chapter 7.
- Do avoid costly purchases for luxury items, vacations, or vehicles.
- Don’t transfer assets for less than fair value, as this could be viewed as an illegal transaction that amounts to fraud.
How a Michigan Bankruptcy Attorney Helps With Bankruptcy
Because eligibility criteria are so critical to your options and choices in bankruptcy, it is important to retain legal counsel. The descriptions of Chapter 7 and Chapter 13 eligibility rules are helpful, but they do not offer sufficient detail to make the right decisions for your unique circumstances. A bankruptcy lawyer in Michigan will explain the relevant laws and how they benefit your case, so you feel confident moving forward with Chapter 7 or Chapter 13. Plus, your bankruptcy attorney will develop a strategy and handle all required tasks throughout the process, such as:
- Reviewing and organizing your financial documents;
- Preparing the proper bankruptcy petition;
- Filing your bankruptcy petition with all required schedules;
- Attending the creditors’ meeting that is required in both Chapter 7 and Chapter 13 cases;
- Helping develop your debt repayment plan and getting confirmation in a Chapter 13 bankruptcy; and,
- Obtaining the final bankruptcy discharge order.
Discuss Legal Options with a Michigan Bankruptcy Lawyer
This description should help you understand the basics of eligibility criteria for filing bankruptcy, but the details can be complicated. Mistakes can lead to losses in terms of both time and money. Legal representation is essential for gaining the best advantages with Chapter 7 or Chapter 13, so please contact Kostopoulos Bankruptcy Law. We can set up a consultation with a knowledgeable bankruptcy attorney who will advise you on qualifying for bankruptcy.
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