Struggling with debts can be frustrating and stressful. For many individuals and families, debt problems begin with a financial crisis that is not within their control, such as job loss, an illness, or an accidental injury. Missing just a few weeks or months of work can cause devastating financial problems.
Chapter 13 bankruptcy in Michigan may be an affordable way to solve your debt problems. In this article, we discuss Chapter 13 cases in Michigan and how Chapter 13 can help you get out of debt.
Understanding Bankruptcy In Michigan
- Chapter 7 vs. Chapter 13 Bankruptcy in Michigan
- Calculating Chapter 13 Plan Payments in Michigan
- Means Testing in Michigan
- Michigan Credit Counseling and Debtor Education Courses
- Michigan Bankruptcy Exemptions
- Bankruptcy Courts and Trustees for Michigan
- Alternatives to Filing Bankruptcy in Michigan
Chapter 7 vs. Chapter 13 Bankruptcy in Michigan
Chapter 7 bankruptcy cases are for individuals who do not have enough money to pay their living expenses and their debuts. During the Chapter 7 process, you must complete a bankruptcy form that measures your income. If you do not meet the income qualifications for a Chapter 7 bankruptcy case, you probably do not qualify for a bankruptcy discharge (debt forgiveness) under Chapter 7.
However, Chapter 13 bankruptcy cases in Michigan are designed for individuals who have a steady income and can afford to pay a portion of their debts. They may not be able to repay all their unsecured debts, but they can pay a percentage of the debts through a Chapter 13 plan. The Chapter 13 process involves proposing a plan that restructures debts into an affordable, monthly repayment plan.
Calculating Chapter 13 Plan Payments in Michigan
Most Chapter 13 plans are calculated based on a 60-month plan. Some individuals may qualify for a 36-month plan. Several factors are used to calculate a Chapter 13 plan. Your income, expenses, assets, debts, and recent financial transactions can impact the amount you must pay in a Chapter 13 case in Michigan.
In most cases, a Chapter 13 plan payment includes payments for:
- Mortgage arrearage (past due mortgage payments)
- Car loan payments
- Tax debts
- Back alimony and child support payments
- Chapter 13 administrative costs
- Unsecured debts (i.e. credit card debts, medical debts, personal loans, judgments, student loans, old utility bills, etc.)
Some debts are not dischargeable in a bankruptcy case. Most tax debts, restitution, government debts, alimony, and child support payments must be paid in full through a Chapter 13 plan. Student loans are not dischargeable, but they are not paid in full through most Chapter 13 plans. Therefore, you will continue to owe your student loans after your bankruptcy is completed.
Many debtors can reduce their car loan payments through their Chapter 13 plan, if they meet the legal qualifications. They may also get rid of second mortgages if their home is worth less than they owe on their first mortgage.
It can be difficult to calculate a Chapter 13 payment in Michigan. You can use the Ascend free Chapter 13 calculator to estimate your Chapter 13 payment. You may also explore more about Chapter 13 cases in our blog.
Means Testing in Michigan
As part of bankruptcy reform in 2005, Congress developed a Means Test that calculates a debtor’s (the person who files the bankruptcy case) average monthly income (AMI).
Calculating Average Monthly Income (AMI)
Your AMI is based on your income for the six months before filing a Michigan Chapter 13 bankruptcy case. All income except Social Security Act income is included in the Means Test. To calculate AMI, divide all income for the past six months by six. Median income is calculated by multiplying your AMI by 12.
The Means Test compares your median income to the average median income for families in Michigan. If your median income is above the Michigan median income, you probably do not qualify for Chapter 7, unless your debts are mainly business debts. Also, you must file a 60-month Chapter 13 plan if your median income is above the Michigan median income.
Median income figures are updated every few months to reflect current income levels. You can view the median income figures of Michigan below starting on May 1, 2020.
|# of People||Annual Income|
Calculating Disposable Income for a Chapter 13 Plan
AMI is also used to calculate disposable income, which is a factor in how much you must pay to your unsecured creditors in a Chapter 13 plan.
Disposable income is the amount of money you have left over each month after you subtract allowable monthly living expenses. Some living expenses are limited and some living expenses are not allowed.
You can find more information about the allowable living expenses used in the Means Test from the United States Trustee’s Office. They have a list of the Census Bureau and IRS data used to calculate the Means Test on their website. Just be sure to use the most current data because the data is updated periodically.
Michigan Credit Counseling and Debtor Education Courses
You must take two bankruptcy courses as part of the bankruptcy process. A Credit Counseling Course is required before filing a bankruptcy case. A Debtor Education Course must be completed after you file your bankruptcy petition.
Both classes are available online for a small fee. A list of the approved companies for Credit Counseling Courses in Michigan can be found here. The approved Michigan Debtor Education providers can be found here. You must use a company that is approved by the United States Trustee to provide bankruptcy courses in Michigan.
Michigan Bankruptcy Exemptions
Bankruptcy exemptions protect property in a bankruptcy case. The exemptions protect a certain amount of equity in property from being used to repay your creditors. Federal bankruptcy exemptions are found in 11 U.S.C. §562. You can also see a list of the federal bankruptcy exemptions published by the NCLC.
Michigan debtors can choose between federal bankruptcy exemptions or Michigan bankruptcy exemptions. You must choose either federal or state exemptions – you cannot mix them. Bankruptcy exemptions are revised every three years in Michigan. The most recent revisions of Michigan bankruptcy exemption were January 1, 2020. You can view the current Michigan bankruptcy exemption amounts here.
To take full advantage of the protections offered by bankruptcy exemptions, you need to compare the exemption amounts for federal and state exemptions to decide which list offers you the greatest protection of assets in Chapter 13. If you have assets with non-exempt equity, you won’t lose the assets in Chapter 13, but you will pay a higher amount each month for your Chapter 13 plan.
Residency Requirements for Michigan Bankruptcy Exemptions
You must have resided in Michigan for 730 days before filing your bankruptcy case to use Michigan bankruptcy exemptions. Otherwise, you must follow the state bankruptcy rules for the state you resided in for the greater part of 180 days before the 730 day period.
If you have not lived in Michigan for the past two years or have substantial equity in your property, you may want to consult with a bankruptcy lawyer to ensure that you choose the correct bankruptcy exemptions to protect property in Chapter 13. Equity is calculated by subtracting valid liens and allowable exemptions from the fair market value of the property.
Bankruptcy Courts and Trustees for Michigan
Michigan is divided into two bankruptcy districts. The Eastern District of Michigan has three divisions. Bankruptcy courts are located in Bay City, Detroit, and Flint. The Eastern District of Michigan has specific local rules and judges’ practices that you need to review before filing Chapter 13 if you do not have a bankruptcy attorney.
The Western District of Michigan has five divisions. Bankruptcy courts are located in Grand Rapids, Kalamazoo, Marquette, Traverse City, and Lansing. The Western District of Michigan also has local rules that you should review if you file bankruptcy without an attorney.
Chapter 13 trustees are assigned to cases to administer the case. The United States Trustee’s office oversees Chapter 13 trustees. You can view a list of Michigan Chapter 13 trustees on the UST’s website.
Alternatives to Filing Bankruptcy in Michigan
Filing for bankruptcy relief is a serious decision. Before filing a Chapter 13 case in Michigan, you may want to explore non-bankruptcy alternatives to debt problems. Our Debt Settlement Guide provides information about getting out of debt without filing bankruptcy. You can also get more information about non-bankruptcy alternatives in our Debt Management vs. Debt Settlement article.
Should I Pursue A Chapter 13 Bankruptcy Case in Michigan?
Ascend’s goal is to provide you with information regarding debt relief options. We want to help you find an affordable way to get rid of debt. Many people have found our Savvy Debt Payoff app extremely helpful in managing debt and finances. If you have questions, please contact Ascend. Call or text us at 833-272-3631 if you have questions or help.