Michigan Chapter 7 Bankruptcy vs. Chapter 13 Bankruptcy

Chapter 7 bankruptcy in Michigan

Chapter 7 bankruptcy is commonly known as a liquidating bankruptcy or straight bankruptcy and usually lasts about 4 to 6 months. Most of the cases my office files (approximately 67% are Chapter 7 with the remaining 33% being Chapter 13 repayment plans). The filing of a Chapter 7 bankruptcy petition immediately creates an estate comprised of all assets owned by the debtor (the person or married couple filing the case). The debtor retains the right to exempt certain assets from the bankruptcy estate and shield them from the bankruptcy process and possible sale by a trustee. In most bankruptcy cases the Chapter 7 debtor will be able to exempt or protect all of his or her assets under applicable Michigan or Federal Bankruptcy laws. The vast majority of cases my office files are “no asset” bankruptcies and my clients retain all of their property.

The objective or goal of a Chapter 7 bankruptcy is to provide the honest debtor with a fresh financial start. This is accomplished, under Chapter 7 of the Bankruptcy Code, by granting the debtor a discharge in exchange for the sale of all non-exempt assets as discussed above. This bankruptcy discharge relieves the debtor from any obligations due and owing his or her unsecured creditors. In other words, upon successful completion of a Chapter 7 bankruptcy case, the debtor will no longer be legally obligated to pay any: (1) credit card debts or other general unsecured debts; (2) medical bills; (3) any monies due and owing any secured creditor resulting from the repossession or surrender of the secured creditor’s collateral (i.e. a car, boat, or real property); and (4) personal loans to friends and/or family members. While technically, a Chapter 7 Debtor is also discharged from having to repay the underlying promissory notes on any secured obligations (a car loan and home mortgage being the most common), the secured creditor retains the right to repossess or foreclose upon those assets in the event of non-payment (i.e you don’t get a free house or car in bankruptcy). As such, if there are certain assets which a debtor wishes to retain and which are the subject of a secured loan, the debtor must continue to make payments to that creditor even after the bankruptcy discharge.

A bankruptcy discharge under Chapter 7 is not, however, without limitations. The Chapter 7 bankruptcy discharge does not eliminate debts for most taxes, student loans, family support obligations such as child support or alimony or debts from fraud, intentional injuries or damages for driving under the influence of drugs or alcohol.

Chapter 13 Bankruptcy

A Chapter 13 bankruptcy petition requires the debtor to formulate a plan of reorganization under which the debtor proposes to re-pay his or her creditors all or a portion of the debt owed to them over a period of three to five years. In most of these cases, a small percentage of the total debt is repaid as the debtor is allowed to keep a reasonable amount of their income for monthly living expenses. In so doing, the honest debtor is entitled to retain all assets, exempt or otherwise, so long as the debtor pays the value of any non-exempt assets if the case were a hypothetical Chapter 7. The Chapter 13 Bankruptcy Plan requires the Debtor to make monthly plan payments to a bankruptcy trustee for the duration of the plan which is usually 3 to 5 years depending on your annual income. The bankruptcy trustee, in turn, distributes those plan payments amongst all of the debtor’s creditors pursuant to the terms of the Chapter 13 Bankruptcy Plan. The Chapter 13 plan payment is intended to address the obligations of the debtor’s: (1) unsecured creditors, (2) tax obligations (both income and property taxes); (3) arrearage on secured assets the debtor wishes to retain; and (4) vehicle loans or other forms of short term secured debt. Note that in most cases long-term secured liabilities like a mortgage will be paid outside of the plan unless there is a mortgage arrearage that the debtor wishes to cure within the bankruptcy.

The dollar amount of the Chapter 13 Bankruptcy Plan payment is the difference between the debtor’s income and the debtor’s monthly expenses (those expenses reasonably necessary for the support of the debtor and the debtor’s dependents). This difference constitutes the debtor’s surplus income and the bankruptcy law requires that this excess “disposable” income be paid to the Chapter 13 trustee who then pays the creditors according to their duly filed proof of claims.

There are many options available to a Chapter 13 debtor that are not available to a Chapter 7 bankruptcy debtor. For example if a debtor is behind on his/her mortgage payment, those arrears can be cured within the Chapter 13 Plan thereby permitting the debtor to keep the home and preventing the bank or mortgage company from foreclosing during that time. In addition, many secured claims need only be paid to the extent of the value of the property securing the claim (home mortgages have special rules in this regard). Lastly, Chapter 13 is an ideal vehicle for paying off back taxes and preventing any further IRS levies or garnishments, interest or penalties from accruing.

SUBJECT CHAPTER 7 BANKRUPTCY CHAPTER 13 BANKRUPTCY
Qualification to file a Bankruptcy Petition Married or unmarried individuals, corporations, and partnerships may file. Married or unmarried Individuals owing not more than $336,900.00 of unsecured debt and not more than $1,010,650.00 of secured debt. No partnerships or corporations allowed.
Consideration for a Bankruptcy Discharge Liquidation of all non-exempt property. Completion of all monthly plan payments and other obligations as required by the chapter 13 plan.
Length of time in Bankruptcy Approximately four months from the filing date. From 36 months to 60 months.
Payment to Creditors Creditors will be paid only if there are non-exempt assets to be liquidated and then only from the net sales proceeds. Surplus income as established in the chapter 13 plan and, if provided for, the net sales proceeds of any other assets sold by the Debtor.
Order in which Creditors are Paid Priority unsecured claims such as taxes will be paid first with any remainder to be paid pro rata (i.e. same percentage paid) to all general unsecured creditors. The trustee will pay creditors in the following order: (1) unsecured priority unsecured claims (typically taxes); (2) secured creditors to be paid through the plan; and (3) general unsecured creditors. Secured Creditors paid outside of the plan receive their regular monthly payment directly from the Debtor.
Benefits Upon successful completion the Debtor’s unsecured obligations will be discharged. As for those obligations securing property the Debtor wishes to retain, the Debtor must continue to make regular monthly payments. Permits the Debtor to retain a house or other secured assets the obligations of which are substantially in arrears. Certain secured claims (typically not a home mortgage) need only be paid to the extent of the value of the collateral. Benefits of a debt consolidation loan with no interest and substantial reduction of principal. Within the context of the plan, discharge certain obligations not otherwise dischargeable under a Chapter 7 bankruptcy case.
Credit Bureau Chapter 7 notation remains on credit bureau for 10 years from the petition date. Chapter 13 notation remains on credit bureau for 10 years from the petition date.

The Michigan Bankruptcy Law Office of Walter Metzen offers each prospective client a free initial consultation to discuss your financial concerns as well as the possible need to file a petition for relief under the United States Bankruptcy Code. The purpose of the initial consultation is to inform you about the bankruptcy process in Michigan, whether you should file a Chapter 7 or a Chapter 13 and how the United States Bankruptcy Code is designed to protect most if not all of your assets through bankruptcy exemptions. In an effort to make the free consultation more productive, we ask that you bring certain financial information to the meeting such as a recent pay-stub, last two years federal tax returns and all of your bills.

Please download or starter packet at Detroit Bankruptcy Lawyer Consultation Form. Please fill out the form as best you can. It must include ALL of your creditors (including family members, taxes, car loans, mortgages and leases), in one column and the amount owed in the adjacent column. The monthly budget should contain a complete breakdown of your income and expenses.

In addition to the above, be prepared to provide our office with dollar values for certain assets, including your home (if you own a home), your vehicles, and any other substantial assets, whether real property or personal property. By providing us the opportunity to review your monthly budget and to gain some understanding of the value of your assets and how much you owe to your creditors, we will be better able to assess your situation and advise you appropriately. You may schedule an appointment by calling our offices directly at (313) 962-4656 or by requesting an appointment via email.

Contact a Detroit Chapter 7 Bankruptcy Lawyer that, not only fully understands the bankruptcy process, but also can realistically advise you of your options. Feel free to schedule your free initial consultation. During this time, we can discuss your case and I can help you take charge of your financial situation.

The Bankruptcy Discharge

What is a discharge in bankruptcy?

A bankruptcy discharge is a Court Order signed by a United States Federal Bankruptcy Judge that releases or discharges the debtor (the person or married couple that is filing bankruptcy) from personal liability for certain specified types of debts. In other words, the debtor is no longer legally required or obligated to pay any debts that are discharged, they are wiped out, forever. The discharge is a permanent order prohibiting the creditors of the debtor from taking any form of collection action on discharged debts, including legal action and communications with the debtor, such as telephone calls, letters, and personal contacts.

Although a debtor is not personally liable for discharged debts, a valid lien (i.e., a charge upon specific property to secure payment of a debt) that has not been avoided (i.e., made unenforceable) in the bankruptcy case will remain after the bankruptcy case. Therefore, a secured creditor may enforce the lien to recover the property secured by the lien.

When does the discharge occur?

The timing of the discharge varies, depending on the chapter under which the case is filed. In a chapter 7 (liquidation) case, for example, the court usually grants the discharge promptly on expiration of the time fixed for filing a complaint objecting to discharge and the time fixed for filing a motion to dismiss the case for substantial abuse (60 days following the first date set for the section 341 meeting). Typically, this occurs about four months after the date the debtor files the petition with the clerk of the bankruptcy court. In individual chapter 11 cases, and in cases under chapter 12 (adjustment of debts of a family farmer or fisherman) and 13 (adjustment of debts of an individual with regular income), the court generally grants the discharge as soon as practicable after the debtor completes all payments under the plan. Since a chapter 12 or chapter 13 plan may provide for payments to be made over three to five years, the discharge typically occurs about four years after the date of filing. The court may deny an individual debtor’s discharge in a chapter 7 or 13 case if the debtor fails to complete “an instructional course concerning financial management.” The Bankruptcy Code provides limited exceptions to the “financial management” requirement if the U.S. trustee or bankruptcy administrator determines there are inadequate educational programs available, or if the debtor is disabled or incapacitated or on active military duty in a combat zone.

How does the debtor get a discharge?

Unless there is litigation involving objections to the discharge, the debtor will usually automatically receive a discharge approximately 3 to 4 months after the filing of the case. The Federal Rules of Bankruptcy Procedure provide for the clerk of the bankruptcy court to mail a copy of the order of discharge to all creditors, the U.S. trustee, the trustee in the case, and the trustee’s attorney, if any. The debtor and the debtor’s attorney also receive copies of the discharge order. The notice, which is simply a copy of the final order of discharge, is not specific as to those debts determined by the court to be non-dischargeable, i.e., not covered by the discharge. The notice informs creditors generally that the debts owed to them have been discharged and that they should not attempt any further collection. They are cautioned in the notice that continuing collection efforts could subject them to punishment for contempt. Any inadvertent failure on the part of the clerk to send the debtor or any creditor a copy of the discharge order promptly within the time required by the rules does not affect the validity of the order granting the discharge.

Are all of the debtor’s debts discharged or only some?

Most, but not all debts are discharged. In a Chapter 7 bankruptcy, the discharge order wipes out all credit card debt, medical bills, general collection debts such as store credit or online credit purchases, past-due or old utility bills such as DTE Energy for gas or electric, telephone and cell phone bills etc. Also included are debts stemming from the voluntary surrender or repossession of vehicles, motorcycles, snowmobiles, and boats. The deficiency balance (the amount owing after the vehicle is sold at auction and the amount netted at sale is applied to the contract balance) is wiped out in bankruptcy. The debts discharged vary under each chapter of the Bankruptcy Code. Section 523(a) of the Code specifically excludes various categories of debts from the discharge granted to individual debtors. Therefore, the debtor must still repay those debts after bankruptcy. Congress has determined that these types of debts are not dischargeable for public policy reasons (based either on the nature of the debt or the fact that the debts were incurred due to improper behavior of the debtor, such as the debtor’s drunken driving).

There are 19 categories of debt excepted from discharge under chapters 7, 11, and 12. A more limited list of exceptions applies to cases under chapter 13.

Generally speaking, the exceptions to discharge apply automatically if the language prescribed by section 523(a) applies. The most common types of non-dischargeable debts are certain types of tax claims, debts not set forth by the debtor on the lists and schedules the debtor must file with the court, debts for spousal or child support or alimony, debts for willful and malicious injuries to person or property, debts to governmental units for fines and penalties, debts for most government funded or guaranteed educational loans or benefit overpayments, debts for personal injury caused by the debtor’s operation of a motor vehicle while intoxicated, debts owed to certain tax-advantaged retirement plans, and debts for certain condominium or cooperative housing fees.

The types of debts described in sections 523(a)(2), (4) and(6) (obligations affected by fraud or maliciousness) are not automatically excepted from discharge. Creditors must ask the court to determine that these debts are excepted from discharge. In the absence of an adversarial proceeding (a lawsuit within the actual bankruptcy case) filed by the creditor and the granting of the request by the court, the types of debts set out in sections 523(a)(2), (4) and (6) will be discharged.

A slightly broader discharge of debts is available to a debtor in a chapter 13 case than in a chapter 7 case. Debts dischargeable in a chapter 13, but not in chapter 7, include debts for willful and malicious injury to property, debts incurred to pay non-dischargeable tax obligations, and debts arising from property settlements in divorce or separation proceedings. Although a chapter 13 debtor generally receives a discharge only after completing all payments required by the court-approved (i.e., “confirmed”) repayment plan, there are some limited circumstances under which the debtor may request the court to grant a “hardship discharge” even though the debtor has failed to complete plan payments. Such a discharge is available only to a debtor whose failure to complete plan payments is due to circumstances beyond the debtor’s control. The scope of a chapter 13 “hardship discharge” is similar to that in a chapter 7 case with regard to the types of debts that are excepted from the discharge. A hardship discharge also is available in chapter 12 if the failure to complete plan payments is due to “circumstances for which the debtor should not justly be held accountable.”

Does the debtor have the right to a discharge or can creditors object to the discharge?

In chapter 7 cases, the debtor does not have an absolute right to a discharge. An objection (an adversary proceeding) to the debtor’s discharge may be filed by a creditor, by the trustee in the case, or by the U.S. trustee. Creditors receive an official bankruptcy notice shortly after the case is filed that sets forth much important information, including the deadline for objecting to the discharge. To object to the debtor’s discharge, a creditor must file a complaint in the bankruptcy court before the deadline set out in the notice. Filing a complaint starts a lawsuit referred to in bankruptcy as an “adversary proceeding.”

The court may deny a chapter 7 discharge for any of the reasons described in section 727(a) of the Bankruptcy Code, including failure to provide requested tax documents; failure to complete a course on personal financial management; transfer or concealment of property with intent to hinder, delay, or defraud creditors; destruction or concealment of books or records; perjury and other fraudulent acts; failure to account for the loss of assets; violation of a court order or an earlier discharge in an earlier case commenced within certain time frames (discussed below) before the date the petition was filed. If the issue of the debtor’s right to a discharge goes to trial, the objecting party has the burden of proving all the facts essential to the objection.

In chapter 12 and chapter 13 cases, the debtor is usually entitled to a discharge upon completion of all payments under the plan. As in chapter 7, however, discharge may not occur in chapter 13 if the debtor fails to complete a required course on personal financial management. A debtor is also ineligible for a discharge in chapter 13 if he or she received a prior discharge in another case commenced within time frames discussed the next paragraph. Unlike chapter 7, creditors do not have standing to object to the discharge of a chapter 12 or chapter 13 debtor. Creditors can object to confirmation of the repayment plan, but cannot object to the discharge if the debtor has completed making plan payments.

Can a debtor receive a second discharge in a later chapter 7 case?

The court will deny a discharge in a later chapter 7 case if the debtor received a discharge under chapter 7 or chapter 11 in a case filed within eight years before the second petition is filed. The court will also deny a chapter 7 discharge if the debtor previously received a discharge in a chapter 12 or chapter 13 case filed within six years before the date of the filing of the second case unless (1) the debtor paid all “allowed unsecured” claims in the earlier case in full, or (2) the debtor made payments under the plan in the earlier case totaling at least 70 percent of the allowed unsecured claims and the debtor’s plan was proposed in good faith and the payments represented the debtor’s best effort. A debtor is ineligible for discharge under chapter 13 if he or she received a prior discharge in a chapter 7, 11, or 12 case filed four years before the current case or in a chapter 13 case filed two years before the current case.

Can the discharge be revoked?

The court may revoke a discharge under certain circumstances. For example, a trustee, creditor, or the U.S. trustee may request that the court revoke the debtor’s discharge in a chapter 7 case based on allegations that the debtor: obtained the discharge fraudulently; failed to disclose the fact that he or she acquired or became entitled to acquire property that would constitute property of the bankruptcy estate; committed one of several acts of impropriety described in section 727(a)(6) of the Bankruptcy Code; or failed to explain any misstatements discovered in an audit of the case or fails to provide documents or information requested in an audit of the case. Typically, a request to revoke the debtor’s discharge must be filed within one year of the discharge or, in some cases, before the date that the case is closed. The court will decide whether such allegations are true and, if so, whether to revoke the discharge.

In a chapter 11, 12 and 13 cases, if confirmation of a plan or the discharge is obtained through fraud, the court can revoke the order of confirmation or discharge.

May the debtor pay a discharged debt after the bankruptcy case has been concluded?

A debtor who has received a discharge may voluntarily repay any discharged debt. A debtor may repay a discharged debt even though it can no longer be legally enforced. Sometimes a debtor agrees to repay a debt because it is owed to a family member or because it represents an obligation to an individual for whom the debtor’s reputation is important, such as a family doctor.

What can the debtor do if a creditor attempts to collect a discharged debt after the case is concluded?

If a creditor attempts collection efforts on a discharged debt, the debtor can file a motion with the court, reporting the action and asking that the case be reopened to address the matter. The bankruptcy court will often do so to ensure that the discharge is not violated. The discharge constitutes a permanent statutory injunction prohibiting creditors from taking any action, including the filing of a lawsuit, designed to collect a discharged debt. A creditor can be sanctioned by the court for violating the discharge injunction. The normal sanction for violating the discharge injunction is civil contempt, which is often punishable by a fine.

May an employer terminate a debtor’s employment solely because the person was a debtor or failed to pay a discharged debt?

The law provides express prohibitions against discriminatory treatment of debtors by both governmental units and private employers. A governmental unit or private employer may not discriminate against a person solely because the person was a debtor, was insolvent before or during the case, or has not paid a debt that was discharged in the case. The law prohibits the following forms of governmental discrimination: terminating an employee; discriminating with respect to hiring; or denying, revoking, suspending, or declining to renew a license, franchise, or similar privilege. A private employer may not discriminate with respect to employment if the discrimination is based solely upon the bankruptcy filing.

How can the Debtor obtain another Copy of the Discharge Order?

If the debtor loses or misplaces the discharge order, another copy can be obtained by contacting the clerk of the bankruptcy court that entered the order. The clerk will charge a fee for searching the court records and there will be additional fees for making and certifying copies. If the case has been closed and archived, there will also be a retrieval fee, and obtaining the copy will take longer.

The discharge order may be available electronically. The PACER system provides the public with electronic access to selected case information through a personal computer located in many clerk’s offices. The debtor can also access PACER. Users must set up an account to acquire access to PACER, and must pay a per-page fee to download and copy documents filed electronically.

The Bankruptcy Process

1. How much property can I keep after filing?

    Chapter 7

    Every state has “exemption” laws that allow you to keep some assets, free from creditors’ claims, even if you do not pay your creditors. The idea is that it would do little good to take all of your assets because you would not have a place to live, clothes to wear or a way to get to work. Most exemptions allow you to keep clothes, household goods, a car of some limited value, tools of trade, as well as other property. Some exemptions allow you to keep some equity in a house.

    In addition, bankruptcy law contains federal exemptions, which you can use when you are in bankruptcy, at least in some states. Those laws list the type and amount of property you can keep. These federal exemptions are available if you live in Arkansas, Connecticut, the District of Columbia, Hawaii, Massachusetts, Michigan, Minnesota, New Jersey, New Mexico, Pennsylvania, Rhode Island, Texas, Vermont, Washington or Wisconsin. If you live in one of these states, you can essentially choose to use either the state or the federal exemptions, based upon your particular circumstances. One scheme may be great for one person, but horrible for another. An experienced bankruptcy attorney will be able to help you choose the appropriate exemptions.

    As we described above, you must give all your non-exempt assets (the ones that do not fit within the exemptions) to the bankruptcy trustee. However, many people do not have property in excess of the allowed amount of exempt property, and if that is the case, you do not need to surrender any property. Despite the exemptions, you always need to pay debts owed to secured creditors in order to keep the collateral securing the debt. Your exemptions do not affect their claims.

    Chapter 13

    Under chapter 13, you enter into a payment plan in exchange for keeping even non-exempt property. Again, you must still pay for secured property in order to keep it. You may not have to pay the full amount of the debt in some circumstances, however. Also, it is possible that a bankruptcy judge may not allow you to keep and pay for certain secured property, such as an unnecessary luxury good.

    You may use a chapter 13 to save your home from foreclosure. The automatic stay stops the foreclosure proceeding as soon as you file bankruptcy. Chapter 13 allows you to catch up on overdue pre-petition payments over time, while keeping up with current payments.

2. What is the difference between secured creditors and unsecured creditors?

A “secured creditor” is a creditor that has a lien on property. A lien is an interest in property that a creditor can use to satisfy a debt. Some liens are voluntary, for example a mortgage or a security interest in a car. Other liens are involuntary, for example a lien on property resulting from unpaid taxes or a judgment.

An “unsecured creditor” is a creditor who has no interest in any of your particular property. Outside of bankruptcy, there are only two ways an unsecured creditor can get paid. First, you can pay the debt voluntarily. This is the way most debts are paid. The other way unsecured creditors get paid is much harder. They must sue you, get a judgment against you, and ask the sheriff to seize your particular property and sell it to satisfy the creditor’s claim.

Even in bankruptcy, the secured creditor has greater protection because its lien on your property is usually honored. The bankruptcy does not remove it.

3. Does a bankruptcy case automatically remove liens—such as mortgages-against my property?

No, liens are not automatically removed. Secured creditors get extraordinary rights in a bankruptcy case. Bankruptcy may temporarily delay secured creditors, but most voluntary liens (those granted by agreement on houses, cars and household goods) have to be satisfied one way or another.
However, you have some opportunities to remove or avoid involuntary liens and a small category of voluntary liens. “Avoid” is the term used in the Bankruptcy Code for removing liens.

    Chapter 7

    You can avoid some involuntary liens (except for liens securing alimony or support obligations) that are on property that you could exempt. You can also avoid some voluntary liens on property that you could exempt. For these voluntary liens, you can only remove liens on certain household goods, “tools of the trade” and professionally prescribed health aids. Moreover, the term “household goods” includes only certain types of items (for example, clothing, one radio, one television, one VCR).

    Chapter 13

    If you file chapter 13, you have the additional ability to remove liens by completing payments under the plan. In some cases, the plan will reduce the amount that you must pay or change the time period over which you must pay the debt. In the case of homes and cars, the ability to change the payment terms is very limited.

4. How does the automatic stay work to stop foreclosures repossessions or other collection efforts from taking place?

Just by filing a bankruptcy petition, an “automatic stay” against all collection efforts is put in place. This is a powerful tool of bankruptcy and one of the law’s primary protections for debtors. Most creditors have to stop all efforts to collect from you. Creditors must stop making calls to you, stop sending letters, stop all lawsuits to collect, etc.

The automatic stay also stops foreclosures, repossessions or sales of property from going forward. If you don’t pay your house payments, however, the creditor will have the right to continue the foreclosure once the dust settles. Thus, the benefits of the automatic stay may be temporary when the creditor is a secured creditor.

There are a number of exceptions to the automatic stay. For example, attempts to establish or collect alimony or support obligations are not stayed, nor are criminal suits or suits by governmental agencies to protect the public.

Moreover, the automatic stay does not arise if you are filing a case within a year of filing two other bankruptcy cases that were dismissed because you did not file all the paperwork or otherwise follow through in your cases. If this happens, the stay is not automatic, but you can still request the protection of a stay.

It means only that creditors must ask the court before taking action. No bankruptcy filing allows you to keep property that is security for a loan without making payments on the loan. If you are behind on the payments and the property is of insufficient value to satisfy the debt, or there is risk of loss of the property, a secured creditor may obtain court permission to seize and sell the property.

In addition, in a chapter 7 case, as soon as the bankruptcy case is closed, the automatic stay terminates, and the creditor can proceed with foreclosure or repossession if you are behind on the payments.

If you have problems with secured debt, you may be better off filing a chapter 13 case than a chapter 7 case because the chapter 13 will allow you to pay off the past-due secured debt over time.

In chapter 13, the automatic stay also protects people other than you who are “co-debtors.” Co-debtors are people who also have an obligation to pay the same consumer debt as you do. That includes people who have guaranteed the debt for you.

5. What must I do to prevent foreclosures and repossessions?

    Chapter 7

    Soon after filing the petition, you must declare whether you will return the property, purchase the property or enter into a reaffirmation agreement with the creditor. However, if you do not do one of these things, the stay will terminate and the creditor may take the property.

    Chapter 13

    Depending upon the plan, you may be able to keep property despite secured claims. You can modify some obligations, for example by stretching out payments and reducing interest rates (where interest rates have fallen since you created the obligation).

6. How does a chapter 13 case help me with my secured debts?

Generally, in a chapter 13 you must pay in full all loans secured by your residence. The good thing is that the case gives you time to pay this off during the term of the plan, unlike a chapter 7. But, while overdue payments must be repaid over the course of the plan, regular monthly payments must still be made on time. Practically speaking, this means that if you were behind on the mortgage payment, you will be making a larger mortgage payment to make up for the past due debt.

Cars purchased for your personal use within 910 days (approximately 2½ years) prior to the filing of the bankruptcy are required to be paid in full through the bankruptcy. You also must pay in full the debt for any other secured property of value that you purchased in the year before filing.

However, you still may be able to reduce the interest rate on these secured debts.

7. What happens if I fall behind in payments after filing a chapter 13 case?

The terms of a confirmed plan bind you and each creditor. If you have an unexpected financial problem during your chapter 13 case, you should immediately consult with your attorney. It is often possible to deal with changed circumstances by amending the chapter 13 plan. Also, it is sometimes possible to add debts that you incurred after filing chapter 13 to the plan, so that they will be discharged with other debts at the completion of the plan.

8. What is a reaffirmation agreement and how does it work?

A reaffirmation agreement is an agreement providing that you will pay a creditor’s debt even though the debt would otherwise be discharged in bankruptcy. In theory, the debt can be renegotiated, but most reaffirmation agreements simply require you to pay the debt as originally agreed.

While unsecured debts can be reaffirmed, this is usually not a good idea. Thus, most reaffirmation agreements deal with secured debts, and debtors enter them to keep the creditor from repossessing or foreclosing on the property securing the debt. A valid reaffirmation agreement puts you under a legal obligation to repay the otherwise dischargeable debt. If you default on the payments required under the reaffirmation agreement, the creditor can repossess or foreclose on the property and seek a personal judgment against you.

In order for a reaffirmation to be valid, the parties must sign the agreement and file it with the court before you receive a discharge. In addition, either your attorney or the court must determine that the agreement does not impose an “undue hardship” on your family. There are other requirements as well, including extensive disclosures to you.

If the parties do not comply with all the requirements for a reaffirmation, the agreement may not be binding. In that event, you would have no personal obligation to make payments under the agreement.

As a rule, you should think very carefully about whether to reaffirm debt, as this limits your bankruptcy discharge.

9. Can I make payments on a discharged debt without a reaffirmation agreement?

Yes. You can make a voluntary payment of the debt. This often happens, for example, with debts to family members or friends. However, the key to this kind of payment is that it must be entirely voluntary; you have no legal obligation to pay a discharged debt, and the creditors can take no action to pressure or persuade you into making the payments.

10. Can I obtain bankruptcy protection again if I have filed a bankruptcy in the past and am now falling behind in payments again?

You may not be able file a bankruptcy petition if a prior case was dismissed because of your failure to abide by a court order. In addition, you cannot file again if, within the last six months, you requested dismissal of the prior case after a creditor sought relief from the automatic stay. The law in effect after October 17, 2005 also imposes the following rules if you have filed prior bankruptcy cases:

    Chapter 7

    You can file another chapter 7 case, but there might not be a right to discharge. If the prior bankruptcy was in chapter 7 and you filed the case less than eight years ago (six years before October 17, 2005) and obtained a discharge, you cannot obtain a discharge in a case filed today.

    Finally, having filed a recent previous bankruptcy may affect the automatic stay. This is true in some situations where the prior case had been dismissed or a creditor had obtained relief from the automatic stay.

    Chapter 13

    You can file another chapter 13 case, but there might not be a right to discharge. On or after October 17, 2005, if the prior bankruptcy was in chapter 7 and you filed less than four years ago and obtained a discharge, you cannot obtain a discharge in a chapter 13 filed today. If the prior bankruptcy was in chapter 13 and you filed the petition less than two years ago and obtained a discharge, you cannot obtain a discharge in a chapter 13 filed today.

    Finally, having filed a recent previous bankruptcy may affect the automatic stay. This is true in some situations where the prior case had been dismissed or a creditor had obtained relief from the automatic stay.

Michigan Bankruptcy Laws/Michigan Credit Card Debt Lawyers/Bankruptcy Attorneys

I, bankruptcy attorney Walter Metzen, will provide, free of charge as part of your free initial Bankruptcy Analysis, a means test calculation to determine if you are eligible for Chapter 7 Bankruptcy. Michigan Credit Card Debt Lawyer. Nearly 90% of the people who walk through my door are eligible to file a Chapter 7 Bankruptcy in Michigan and get a permanent discharge of their debt. With Chapter 13 Bankruptcy in Michigan, we can develop and affordable repayment plan to fit every budget.

Contact me, Michigan bankruptcy attorney Walter Metzen to learn more about how I can help you get a Fresh Financial Start!.


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