Overview of Chapter 7 Bankruptcy in Michigan

Making the decision to file for chapter 7 bankruptcy should only come after extensive research and consideration. You will need to evaluate your financial situation and your options to relieve your debt, and determine whether or not chapter 7 bankruptcy is necessary. There are many factors that determine your eligibility to file chapter 7 bankruptcy, and there are other alternatives that may be better suited for your situation.

Eligibility to File Chapter 7 Bankruptcy

To determine eligibility for chapter 7 bankruptcy, a court will look at your financial situation and weigh it against alternative means of debt relief. If your debts are business-related, filing for chapter 11 may be a more logical solution. Debtors with regular in will usually be advised to file for chapter 13 bankruptcy.

The primary factor that determines your eligibility to file for chapter 7 bankruptcy is your current monthly income. To meet the requirements to petition for chapter 7 bankruptcy, your income must be below the state median. If you file a petition and your income is greater than the state median, your financial situation will be put through a “means test” to make sure the petition is not abusive.

The means test first looks to see whether the debts are primarily business-related, in which case the petition will be denied. Next, the debtors’ aggregate current monthly income over 5 years must be no more than $11,725 or 25% of the debtor’s non-priority unsecured debt (as long as that amount is greater than $7,025).

Before going through the petition process and potentially risking denial, your bankruptcy attorney will discuss with you the alternative methods to debt relief.

Learn more about Eligibility Rules in Bankruptcy.

Your attorney may suggest the following alternatives, including:

• a different chapter of bankruptcy;
• credit counseling;
• out-of-court negotiations with creditors; or
• asset liquidation.

Impact of Chapter 7 Bankruptcy on Your Credit

A successful petition for chapter 7 bankruptcy will result in the removal of most (if not all) of your debts. This is not just a matter of wiping the slate clean; your non-exempt properties and assets may be liquidated and the money will be used to repay as much of your debt as possible.

It is imperative that you pay close attention to your disclosure of assets and make sure all exempt properties are noted as such. A bankruptcy attorney can assist you in reviewing your assets and determining which are exempt from liquidation in chapter 7 bankruptcy. (Learn more about what happens to your property in chapter 7 bankruptcy.)

After your debts are reduced through the chapter 7 bankruptcy liquidation process, the chapter 7 bankruptcy will remain on your credit history for 10 years. While this may seem like a serious issue when looking to rebuild credit, there are many low-risk lines of credit you can secure soon after your bankruptcy that will help you re-establish healthy credit.

Basics of Chapter 7 Bankruptcy

Chapter 7 bankruptcy can be considered a liquidation plan designed to relieve a debtor of their debts. Chapter 7 bankruptcy is one of the harshest forms of debt relief as it requires all non-exempt property and assets to be sold to help repay your debts to creditors. In addition, not all forms of debts can be relieved through filing chapter 7 bankruptcy.

Some debts which still must be repaid include:

• tax liens;
• student loans; and
• domestic/child support.

Filing for chapter 7 bankruptcy will also not remove a lien on a property. Chapter 7 bankruptcy typically covers consumer debts such as credit card balances and car loans.

Chapter 7 Bankruptcy Process

Aside from the initial determination of eligibility for chapter 7 bankruptcy, you must undergo credit counseling within 180 days before you file your petition. Upon completion of counseling through an approved service, you must provide a certificate of credit counseling with your petition, as well as a debt repayment plan if one was developed as part of your counseling.

Before you file for chapter 7 bankruptcy you also must submit the following income evidence, including:

• your wages (if any) received in the 60 days before filing,
• evidence of your net income and anticipated increases or expenses, and
• records of interest held in federal or state education/tuition accounts

Your bankruptcy attorney can assist you in locating all this information and providing it to the court.

Once your initial information is prepared and submitted, you will be allowed to file your petition for chapter 7 bankruptcy. The petition must accompany a schedule of exempt property that details the property that should be exempt from liquidation if your petition is approved.

Many debtors have made the mistake of improperly preparing their schedule of exempt property, which leads to devastating results. Any property eligible for exemption and not included on this listing will be liquidated to assist in repaying your debts. There are other options to protect your property from liquidation.

Learn more about Your Property in Bankruptcy.

How Can a Michigan Bankruptcy Attorney Help?

If times have gotten so tough that you feel you have no alternative but to declare bankruptcy, it’s important that you protect yourself from companies that take advantage of consumers when they are at their lowest financial point. Consider talking to a bankruptcy attorney first to get a legal assessment of your financial situation.

Get Informed: Michigan Bankruptcy Information.