If you are struggling with debt and unable to keep up with bills, each passing day brings anxiety and frustration with your financial situation. Every time you receive a bill, you see how your balance does not go lower after payments are absorbed by late fees and interest. You are hearing from creditors, who may be threatening lawsuits and engaging in other harassment. Bankruptcy might be a solution for discharging debt and resolving your financial difficulties, but many people shy away because they do not understand how the laws work. Therefore, it is critical to know the process for filing bankruptcy in Michigan if you are considering options for debt.
When filing as an individual or jointly as a married couple, the two most common options for debtors are Chapter 7 and Chapter 13. The rules are very different in many ways, particularly when it comes to eligibility for the proceedings. Still, there are some shared elements between Chapter 7 and Chapter 13. You can count on your Michigan bankruptcy lawyer to take the necessary steps and handle all essential tasks throughout the process. Plus, some background on Chapter 7 and Chapter 13 is useful.
Steps in Chapter 7 Bankruptcy
One of the most important parts of the Chapter 7 process is qualifying to go through the proceedings. There are critical rules to be eligible for this type of case, and they are based on your income:
- You automatically qualify if your earnings are lower than the state median income level for a household of your size.
- If you are not automatically eligible, there is a second chance through the Means Test. Your income is adjusted after consideration of your monthly bills, enabling you to qualify for Chapter 7.
These are rigid requirements, but the result is positive with Chapter 7 discharge bankruptcy. You can eliminate all debt and owe nothing to creditors when your case concludes. The downside is that the bankruptcy trustee has the authority to liquidate your assets to pay debts to creditors. Your real estate and personal property could be sold, but there are many nonexempt assets that the bankruptcy process cannot touch. Plus, the trustee will often choose not to liquidate assets that do not carry much profit.
Process for Chapter 13 Cases
The focus of the process with a Chapter 13 bankruptcy case is the debt repayment plan that is created to pay back a portion of what you owe to creditors. Where liquidation may be used to satisfy debt in Chapter 7, the debt repayment plan achieves this goal in Chapter 13. Many filers opt for this type of bankruptcy because they do not risk losing assets in liquidation, even if they do otherwise qualify for Chapter 7. For those who are not eligible for Chapter 7, Chapter 13 is a powerful option for wiping out debt.
There is just one criterion to qualify, so you must have a job and income to pay under the debt repayment plan. During the debt restructuring process of Chapter 13, your debts are reorganized and reduced into a monthly payment amount you can afford. You will pay this amount for 3 to 5 years, at which point your case concludes. All qualifying debt is discharged.
Rules on Discharging Debt
An important note about the process for filing bankruptcy in Michigan is how debt is handled. You can only eliminate qualifying debt, a broad term that covers types of payments, accounts, and other credit arrangements. When you look at the specifics, you will see certain debts that are and are not dischargeable.
- The Chapter 7 and Chapter 13 processes can wipe out unsecured debt. These are accounts you opened or loans you took without pledging collateral. Unsecured debt that can be discharged in bankruptcy includes credit cards, medical debt, personal loans, and lines of credit.
- Secured debt cannot be discharged through bankruptcy in most cases. This is because the lender has a security interest in an asset that you own. Your mortgage is a secured loan, in which the lender can exercise its rights to your home by foreclosing.
- Some debts are not dischargeable by law. You cannot eliminate child support, alimony, fees to the government, certain taxes, judgments from DUI lawsuits, and many other types of debt.
Myths About Bankruptcy in Michigan
One of the most common misconceptions about bankruptcy is that it will have devastating effects on your credit. There are impacts, but you may gain perspective through comparison. Chapter 7 stays on your credit report for 10 years, and Chapter 13 remains for 7 years. However, 7 to 10 years may seem a short time when you consider how long it could take you to pay creditors without the benefits and protections of bankruptcy. Some additional myths about bankruptcy should also be debunked:
- Myth: Creditors can continue to pursue you. This is false because there is an automatic stay on all creditor efforts to collect your debt, and it starts the day you file.
- Myth: Your home will be sold in bankruptcy. Though the bankruptcy process includes the liquidation of important assets like your home, you have the benefit of exemptions. These are protections you can apply to an asset that the bankruptcy trustee cannot sell. For instance, there is an exemption for your residence, which is almost $46,125 in its equity.
- Myth: You cannot discharge student loans in bankruptcy. Not true, as there are options for those struggling with student debt. You may qualify by showing extreme hardship and meeting other legal requirements.
Benefit from the Process with Help from a Bankruptcy Lawyer
There are numerous benefits you gain through the bankruptcy process, including peace of mind that you have a brighter financial outlook. Still, retaining a bankruptcy attorney in Michigan will be essential to ensure your case runs smoothly and mistakes do not jeopardize your future. You can rely on your lawyer to:
- Counsel you on the best bankruptcy solution for your circumstances;
- Handle preparations and organization of your financial documents;
- Prepare and file the bankruptcy petition; and,
- Assist with all tasks for obtaining the discharge order.
Set Up a Consultation with Our Michigan Bankruptcy Attorneys
It is helpful knowing the process for filing bankruptcy in Michigan, but you can see that your case will be smoother when you have legal counsel. Chapter 7 and Chapter 13 are major steps toward a solid financial future, so trust our team at Kostopoulos Bankruptcy Law to guide you. To learn more about the proceedings, please contact us to schedule a consultation. A skilled bankruptcy lawyer will explain what to expect during your case.