If you are struggling to pay debts that you cannot afford to pay, you might be eligible for a Chapter 7 bankruptcy in Michigan. Thousands of people file for bankruptcy relief each year under Chapter 7. Most unsecured debts are dischargeable in bankruptcy. Therefore, you could get rid of most or all of your unsecured debts without paying any more money to those creditors.
Are you ready to learn more about Chapter 7 bankruptcy in Michigan? We answer several of the most common Chapter 7 questions. You can read through the article or click on the table of contents to move directly to the question that interests you.
Understanding Chapter 7 Bankruptcy in Michigan
Chapter 7 is generally the least costly and quickest form of bankruptcy an individual can file. Let’s look at the differences between Chapter 7 and Chapter 13 to get a better idea if Chapter 7 might be right for your financial situation.
Chapter 7 vs. Chapter 13 Bankruptcy
Chapter 7 bankruptcy cases are liquidation bankruptcy cases. If an asset has a lot of equity, the Chapter 7 trustee could sell the asset to pay your unsecured creditors.
Five things that you need to know about Chapter 7 bankruptcy in Michigan are:
- You must meet income qualifications.
- You may or may not lose an asset.
- Chapter 7 can be completed in about six months.
- A Chapter 7 case stays on your credit report for ten years.
- Chapter 7 is less expensive than Chapter 13.
- You must have sufficient income to enter a repayment plan.
- You can stop foreclosures and repossessions.
- The repayment plan is three to five years.
- Chapter 13 is more expensive to file than Chapter 7.
- A Chapter 13 case remains on your credit report for seven years.
There are other differences between Chapter 7 and Chapter 13, but those are the main differences that most people consider when deciding between the two bankruptcy chapters. If you have doubts, you can talk to a bankruptcy lawyer for free.
Estimating Chapter 7 Income Qualifications for Michigan
You must meet the income requirements for a Michigan Chapter 7 case to receive a bankruptcy discharge. If you file Chapter 7 without meeting the income requirements, you do not receive a discharge. Therefore, ensuring that you meet the income requirements for a Chapter 7 Michigan bankruptcy case is crucial before proceeding.
Do I Qualify For Chapter 7 Bankruptcy in Michigan?
The Means Test is the bankruptcy form used to determine if you meet income qualifications for Chapter 7. It calculates your current monthly income, annual median income, and disposable income. All three figures are important.
The first step is to calculate your current monthly income. You add together all household income for the past six months and divide by six. The total is your current monthly income. Multiply your current monthly income by 12 and you have your annual median income.
Your annual median income is compared to the annual median income for Michigan based on the number of people in your household. If your median income is below the Michigan median income, you “pass” the income test for Chapter 7.
Below is a free Michigan Chapter 7 Calculator. It will estimate your annual income and compare it to the Michigan annual income. You can see if your income is below or above the Michigan median income for a household of your size. If your median income is above the state median income, you could still qualify for Chapter 7. Let’s see how.
My Chapter 7 Income Was Over Michigan’s Median Income. Does That Mean I Don’t Qualify?
You could qualify for Chapter 7 if your disposable income is below a certain amount. The second part of the Means Test calculates disposable income.
Disposable income is the money you have each month after you pay your living expenses. Your disposable income is used to pay your debts. Allowable monthly expenses are deducted from current monthly income to determine your disposable income.
If your median income is above the Michigan median income, contact us. We have a calculator that can help you estimate your disposable income.
What Does Chapter 7 Bankruptcy in Michigan Cost? Can I Afford It?
If you meet the income qualifications for a Michigan Chapter 7 bankruptcy case, the next step is to talk to a lawyer. You can file Chapter 7 without a lawyer, but it is generally best to discuss your financial situation with a bankruptcy lawyer first. A lawyer analyzes your finances and your assets to determine if Chapter 7 is right for you.
We have a Michigan bankruptcy lawyer fee calculator that you can use to estimate how much an attorney would charge for a Chapter 7 bankruptcy in your area. Additionally, the calculator gives you the names of several bankruptcy lawyers in your area.
We can even help you arrange for a free consultation with a bankruptcy attorney.
Michigan Bankruptcy Legal Aid
If you cannot afford a bankruptcy lawyer, you might be able to qualify for bankruptcy legal aid. You can contact the State Bar of Michigan or a county legal aid office to apply for legal aid to help with filing a Chapter 7 in Michigan.
Should I File Chapter 7 Bankruptcy in Michigan?
Filing Chapter 7 bankruptcy in Michigan is a serious decision. Before you proceed, you might want to consider issues related to exemptions and how bankruptcy affects your credit. You might also want to consider the benefits of Chapter 7 and whether there is a better alternative to filing Chapter 7.
Michigan Chapter 7 Bankruptcy Exemptions
Debtors can use bankruptcy exemptions to protect their property from creditors and the Chapter 7 trustee. Exemptions allow you to keep your assets while getting rid of your debts.
You can choose between federal bankruptcy exemptions and Michigan bankruptcy exemptions if you have lived in Michigan for 730 days or longer. Bankruptcy exemption amounts change every few years, so make sure you use the most current figures.
For most people, their home, vehicle, and household goods are the most important assets they want to protect. Let’s look at the Michigan bankruptcy exemptions for those assets.
As of January 1, 2020, the Michigan bankruptcy exemptions are:
- Homestead exemption $40,475 ($60,725 if disabled or over 65 years of age)
- Vehicle exemption $3,725
- Household goods exemption $4,050 ($625 per item)
If you are filing without an attorney, you are responsible for reading the code and determining whether to choose federal or state bankruptcy exemptions. Once you file your Chapter 7 bankruptcy, you might not be able to dismiss it if you realize you made a mistake. Talking to a bankruptcy lawyer can help avoid that situation.
How Does Chapter 7 Bankruptcy Affect Your Credit?
Bankruptcy is a negative mark on your credit report. It will cause a temporary decrease in your credit score. The amount of the decrease depends on your credit score before filing bankruptcy. Generally, if your credit score was already damaged, the decrease may not be significant.
Chapter 7 remains on your credit report for ten years. However, you can qualify for credit and loans immediately after your Chapter 7 case is closed. It is best to wait a while and work on rebuilding your credit after bankruptcy. With patience and dedication, you can improve your credit score within a year or so after filing Chapter 7.
Pros and Cons of Chapter 7 Bankruptcy
The pros and cons of filing Chapter 7 in Michigan depend on your unique financial situation. Some benefits and disadvantages that are important to some people may not be as significant to you, given your situation.
Common benefits of filing Chapter 7 include:
- Quick debt relief in as little as six months
- Stop creditor harassment
- Gets rid of most unsecured debts without additional payments
- Fees are lower than a Chapter 13 case
Common disadvantages of filing Chapter 7 include:
- Does not help with foreclosures or repossessions unless you want to surrender the property to get rid of the debt
- Stays on your credit report for 10 years
- Causes a temporary decrease in credit scores
- Could lose assets if not covered by exemptions
Before deciding to file Chapter 7, you may want to review some of the alternatives to Chapter 7.
Chapter 7 Bankruptcy Alternatives
Several debt relief options might be better for you, depending on your financial situations. Alternatives to Chapter 7 include:
Click on any of the links above to get more information about the alternatives to filing Chapter 7 in Michigan.
What Else Is Important About the Michigan Chapter 7 Bankruptcy Process?
Knowing the general process for filing Chapter 7 bankruptcy in Michigan and where to file a bankruptcy case can be helpful.
Filing Bankruptcy in Michigan Process
Each Chapter 7 case is unique. However, there are some basic steps in the Chapter 7 bankruptcy process that are common in all cases:
- Complete the Means Test to see if you meet the income requirements
- Examine bankruptcy exemptions and other issues to decide if Chapter 7 is right for you
- Decide whether to hire a Chapter 7 bankruptcy lawyer
- Complete the mandatory credit counseling course
- Complete and file your bankruptcy forms
- A Chapter 7 trustee is assigned to your case (list of Chapter 7 trustees in Michigan)
- Attend the 341 Meeting of Creditors
- Complete mandatory debtor education course
- Case is discharged and closed
Of course, if there are any issues or problems in your Chapter 7 case, that could result in additional hearings. A Chapter 7 bankruptcy lawyer can identify any issues and discuss those issues with you before filing.
Michigan Bankruptcy Districts
Michigan has two bankruptcy districts. You file your bankruptcy case in the district that covers your residence. There is the Eastern District of Michigan and the Western District of Michigan. Each district has divisions that cover counties within that division.
The Eastern District of Michigan has three divisions — Flint, Bay City, and Detroit. The Western District of Michigan has five divisions — Traverse City, Grand Rapids, Marquette, Lansing, and Kalamazoo.
What Michigan Chapter 7 Bankruptcy Questions Can We Answer?
We hope that this article gave you information you can use to decide how to deal with your debts. We encourage you to reach out to us if you have questions or want help with a debt problem.
Our goal at Ascend is to help you on your path to debt freedom. We are here for you when you are ready to take the next step toward a life without debt.