New Legal Steps for 2026 Bankruptcy

In Chapter 7, the trustee takes a look at your properties and compares their equity to the exemptions you declare. Equity is the worth of the residential or commercial property 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 lorry. In Chapter 13, exemptions still matter, but in a different way. Rather of offering non-exempt home, the law typically requires that unsecured financial institutions get at least as much through your strategy as they would have gotten if you filed Chapter 7 and your non-exempt possessions were sold.

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For example, a Michigan homeowner with equity above the homestead exemption may choose Chapter 13, make a higher month-to-month payment for a set number of years, and still keep the home. Because the option in between Michigan and federal exemptions can tilt the balance in between Chapter 7 and 13, this is not something to rate.

If Chapter 7 looks risky however the customer's income can support a sensible Chapter 13 payment, the suggestion might shift towards Chapter 13 to safeguard hard-earned home. How each chapter treats your particular debts typically matters more than any abstract benefits and drawbacks list. Unsecured debts, such as charge card, medical expenses, payday advance, and lots of personal loans, typically receive similar outcome in both chapters, however through different courses.

In Chapter 13, unsecured lenders often get a share of what you pay into the strategy, which may be anywhere from a small percentage to the complete quantity, and the staying balance can be released at the end if you complete your plan. Safe debts involve property that works as security, such as a mortgage on a home or a lien on a vehicle.

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Keeping a secured possession typically includes remaining existing on payments and, in some cases, signing a reaffirmation contract that keeps you personally accountable on that specific loan after insolvency. If you are far behind and can not capture up rapidly, giving up the home in Chapter 7 erases your personal liability for any deficiency balance after the lender sells it.

You can spread out mortgage or automobile loan financial obligations over a 3 to five-year plan, which is called curing defaults, while also resuming your regular month-to-month payments. In some situations, Chapter 13 also enables a decrease of certain lorry loan balances to the vehicle's current worth, an idea referred to as cramdown, though in-depth guidelines use.

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Top priority and nondischargeable financial obligations, such as current earnings taxes, kid support, alimony, and most student loans, stand in a different classification. These are generally not eliminated in Chapter 7, though the automated stay can pause some collection while the case is pending. In Chapter 13, these financial obligations are often paid in full through your strategy before unsecured creditors get anything.

At Hensel Law Workplace, PLLC, a comprehensive creditor list is mapped to these classifications so you see exactly which debts will be erased, which should be paid, and which chapter manages them better. Understanding for how long each chapter lasts and what life appears like throughout the case can decide feel less abstract.

Shortly after filing, the automatic stay normally stops garnishments, claims, and the majority of collection calls. You go to a meeting of lenders, often called the 341 conference, where the trustee asks concerns about your documents and finances. After that, you mainly wait on deadlines to pass and for the court to issue a discharge, unless the trustee needs more details or is exploring non-exempt possessions.

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You file the case, and the automatic stay enters into result, stopping garnishments, foreclosure sales, and most collection activity. You propose a repayment plan, begin making month-to-month payments to the Chapter 13 trustee, and go to a 341 conference and, in many cases, a verification hearing where the judge thinks about whether to authorize the strategy.

Lots of Michigan filers are shocked by how structured but workable the daily reality can be when the plan is realistic. In Chapter 7, your main obligations are to be truthful, provide documents, attend your meeting, and complete a required financial education course. In Chapter 13, the added responsibilities include staying with a budget, making every plan payment on time, and reporting significant income modifications.

When you understand how each chapter works, the next action is lining that up with your objectives. One core tradeoff is speed versus structure. Chapter 7 moves faster and generally includes no long-lasting payment commitments, which appeals to Michigan renters and property owners who are present on their home loans and have mostly unsecured financial obligations.