Chapter 7 bankruptcy can be a godsend to Michigan residents facing crushing debt burdens. Under Chapter 7, you receive a complete discharge of all your bankruptcy debts after your creditors liquidate your non-exempt assets. The court will even issue a stay preventing your creditors from taking collection action against you during bankruptcy proceedings. Since Chapter 7 is a complicated area of law with many subtle nuances, it is important that you retain the services of a professional before and during the process.
Below is a list of questions and answers on the basics of Chapter 7 bankruptcy. Since bankruptcy rules apply differently to every individual filer, use this as a starting point rather than a substitute for the advice of an experienced bankruptcy attorney.
- What’s the difference between Chapter 7 and Chapter 13 bankruptcy?
- Do I qualify for Chapter 7 bankruptcy?
- Can I discharge all of my debts under Chapter 7?
- Can I keep any of my assets and still qualify for a debt discharge?
- Can I keep my home?
What’s the difference between Chapter 7 and Chapter 13 bankruptcy?
A Chapter 13 bankruptcy requires you to pay some or all of your debts within three to five years under a negotiated payment plan. A Chapter 7 bankruptcy, by contrast, offers you a complete discharge of all included debts on the condition that all of your non-exempt assets be used to pay your bankruptcy creditors. Chapter 7 is the most common form of personal bankruptcy. It is used by debtors who lack the ability to pay their creditors under a payment plan. If the court determines that you can discharge your debts by paying in installments, it may automatically convert your Chapter 7 bankruptcy petition into a Chapter 13 petition.
Do I qualify for Chapter 7 bankruptcy?
You may qualify for Chapter 7 bankruptcy either as an individual or as a business. To qualify as an individual, you must pass a financial Means Test. If your household income falls below the median income for Michigan households of similar size and you lack the financial resources to pay your debts in installments, you will probably pass the Means Test. Even if your income exceeds this level, you may be able to take advantage of a loophole.
Can I discharge all of my debts under Chapter 7?
Certain debts cannot be discharged in Chapter 7 bankruptcy. These include, but may not be limited to, the following:
- Secured loans (except for deficiency judgments),
- Federally guaranteed student loans;
- Domestic support obligations;
- Debts incurred through fraud; and
- Tax penalties.
Can I keep any of my assets and still qualify for a debt discharge?
Certain property is exempt by law from seizure by your creditors. These assets include, but may not be limited to, the following:
- Equity in your home;
- Personal motor vehicles;
- Work tools;
- Furniture and appliances; and
- Life insurance policies and certain investment accounts.
These exemptions are subject to certain limitations however, typically based on the dollar value of your equity in the asset. Michigan and federal bankruptcy law apply two different sets of exemption rules, and Michigan allows you to choose which set of rules to use based on your own financial best interests.
Can I keep my home?
If the value of your home equity is less than the value of your exemption (at least $37,775 as of 2016 under Michigan bankruptcy exemption rules), you will probably be able to keep your home. Even if your home equity exceeds the value of your exemption and it is sold to pay your creditors, you are still entitled to the cash value of your exemption.
Contact Attorney Nancy Neal Joyce Today
Attorney Nancy Neal Joyce has helped hundreds of clients obtain financial freedom. Do not hesitate to contact her Livonia, Michigan office at (734) 427-7772 for a free initial consultation. She offers prompt, professional services and will work with you directly to guide you through every aspect of the process based on the details of your personal finances.
