Bankruptcy is a legal process that allows individuals and businesses struggling with debt to repay a portion of their debt and have the rest forgiven. The two most common forms of bankruptcy for individuals in Michigan are Chapter 7 and Chapter 13. Which type of bankruptcy is best for you depends on various factors, including the amount of debt you have, whether it is secured or unsecured, and your income.
Chapter 7 Bankruptcy: Liquidation
Chapter 7 bankruptcy is often called liquidation bankruptcy because it involves an individual liquidating their assets to repay their debts. This type of bankruptcy is primarily for those who would otherwise be unable to repay their debts due to a lack of income.
Before filing under Chapter 7, you must pass a means test to determine your eligibility. U.S. Bankruptcy Court Rule 1007-4(a) states that the initial means test involves submitting a monthly income statement. This statement is compared to the median household income for the state based on your household size, and if your income is lower than the median, you automatically qualify. You may still qualify if your income exceeds the median, but you must submit additional paperwork.
After qualifying under Chapter 7, a trustee will oversee your case and sell off non-exempt assets to repay your creditors. Some examples of exempt assets in Michigan include family pictures, clothing, a vehicle up to a certain value, and your home. The process of liquidating assets to repay your debts typically concludes within six months.
Chapter 13 Bankruptcy: Reorganization
Chapter 13 bankruptcy is often referred to as reorganization bankruptcy because it involves reorganizing your debts so you can pay them off over an agreed-upon period. Typically, if you have a steady income and make more than the median income for a household of your size, this is the type of bankruptcy you will file.
To be eligible under Chapter 13, the combined total of your secured and unsecured debts must be less than $2,750,000. You must also present a three to five-year plan for how you intend to repay your debts. If the court approves your plan, you will make regular payments to a trustee who will distribute the funds to your creditors.
Choosing Between Chapter 7 and Chapter 13 Bankruptcy
Choosing which kind of bankruptcy is right for you depends on your circumstances. If you do not have much disposable income or you have significant debts, Chapter 7 may be your best option. However, if you have a steady income, want to protect your assets from liquidation, and believe you can catch up on your missed payments, Chapter 13 may be the right choice.
Contact Our Michigan Bankruptcy Lawyers
If you are considering filing for bankruptcy in Michigan, contact Marrs & Terry for a free case evaluation with an experienced bankruptcy lawyer. We will review your case, explain the pros and cons of Chapter 7 and Chapter 13 bankruptcy for your situation, and answer any questions you have about the bankruptcy process.