Navigating Between Chapter 7 and Chapter 13 for 2026

In Chapter 7, the trustee takes a look at your properties and compares their equity to the exemptions you declare. Equity is the value of the home minus what you owe on it. If your equity in a home, car, or other residential or commercial property is totally covered by exemptions, the trustee usually leaves that possession alone.

That analysis frequently identifies whether Chapter 7 is safe for someone with built-up equity in Michigan property or a paid-off vehicle. In Chapter 13, exemptions still matter, however in a various method. Rather of selling non-exempt residential or commercial property, the law usually requires that unsecured creditors receive at least as much through your strategy as they would have gotten if you filed Chapter 7 and your non-exempt properties were sold.

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A Michigan house owner with equity above the homestead exemption may pick Chapter 13, make a greater month-to-month payment for a set number of years, and still keep the house. Since the choice in between Michigan and federal exemptions can tilt the balance between Chapter 7 and 13, this is not something to guess at.

If Chapter 7 looks risky but the customer's income can support a reasonable Chapter 13 payment, the recommendation may shift toward Chapter 13 to secure hard-earned property. How each chapter treats your particular debts often matters more than any abstract advantages and disadvantages list. Unsecured debts, such as credit cards, medical expenses, payday loans, and lots of individual loans, typically get similar end results in both chapters, but through various courses.

In Chapter 13, unsecured lenders frequently get a share of what you pay into the plan, which may be anywhere from a little percentage to the complete quantity, and the staying balance can be discharged at the end if you complete your strategy. Protected debts include residential or commercial property that serves as collateral, such as a home loan on a home or a lien on a cars and truck.

Comparing Chapter 7 Vs Chapter 7 in 2026

Keeping a protected property typically includes remaining existing on payments and, in some cases, signing a reaffirmation contract that keeps you personally liable on that specific loan after insolvency. If you are far behind and can not catch up rapidly, giving up the residential or commercial property in Chapter 7 cleans out your personal liability for any deficiency balance after the loan provider sells it.

You can expand home mortgage or auto loan arrears over a three to five-year strategy, which is called curing arrears, while likewise resuming your routine monthly payments. In some circumstances, Chapter 13 also allows a reduction of certain car loan balances to the vehicle's existing value, a principle referred to as cramdown, though detailed rules use.

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Priority and nondischargeable financial obligations, such as current earnings taxes, kid support, spousal support, and the majority of student loans, stand in a different classification. These are usually not eliminated in Chapter 7, though the automatic stay can stop briefly some collection while the case is pending. In Chapter 13, these financial obligations are frequently paid completely through your strategy before unsecured lenders get anything.

At Hensel Law Workplace, PLLC, a comprehensive lender list is mapped to these classifications so you see exactly which debts will be removed, which must be paid, and which chapter manages them more efficiently. Knowing the length of time each chapter lasts and what every day life appears like throughout the case can make the decision feel less abstract.

Shortly after filing, the automated stay usually stops garnishments, lawsuits, and most collection calls. You attend a meeting of financial institutions, frequently called the 341 meeting, where the trustee asks questions about your paperwork and financial resources. After that, you primarily wait on deadlines to pass and for the court to issue a discharge, unless the trustee needs more information or is checking out non-exempt properties.

Strategic 2026 Bankruptcy Support and Tips

You submit the case, and the automatic stay goes into result, stopping garnishments, foreclosure sales, and many collection activity. You propose a payment plan, begin making monthly payments to the Chapter 13 trustee, and go to a 341 conference and, in a lot of cases, a confirmation hearing where the judge thinks about whether to approve the plan.

Many Michigan filers are shocked by how structured but workable the day-to-day truth can be when the plan is reasonable. In Chapter 7, your primary obligations are to be truthful, offer files, attend your meeting, and complete a required monetary education course. In Chapter 13, the included obligations consist of sticking to a budget plan, making every plan payment on time, and reporting substantial earnings changes.

When you comprehend how each chapter works, the next action is lining that up with your objectives. One core tradeoff is speed versus structure. Chapter 7 moves much faster and generally includes no long-lasting payment commitments, which attract Michigan tenants and house owners who are current on their home loans and have primarily unsecured financial obligations.