Chapter 7 Bankruptcy Attorney in Ypsilanti, Michigan

Through the first eight months of 2021, there were 11,461 bankruptcy filings in the state of Michigan, according to statistics gathered by the American Bankruptcy Institute (ABI). Of those, 80% — or 9,157 — have been under Chapter 7 of the bankruptcy code.

To most people, bankruptcy is a scary word denoting failure and the loss of everything they have, but it is really a fresh start that can relieve people of overwhelming debt and anxiety. And in many cases, it does not mean the loss of everything. There are exemptions that can allow you to keep the essentials of your life, often including your home and your car.

If your debt obligations are overwhelming you in Ypsilanti, Michigan, or in neighboring Belleville, Ann Arbor, Kalamazoo, or Portage, contact The Law Offices of John R. Bailey to discuss the options available to you under the bankruptcy code.

With more than 30 years of experience, attorney John R. Bailey can assess your situation and guide you through the bankruptcy process to give you a fresh start.

Chapter 7 of the Bankruptcy Code

A Chapter 7 bankruptcy is one that relies on liquidation, meaning any nonexempt assets you own will likely be sold to pay off your creditors. This sounds scary, no question about it, but many assets are exempt from a Chapter 7 filing. Michigan is also one of the few states that allow you to choose your exemptions from the federal bankruptcy code or Michigan’s own list, but you can’t mix and match. It’s one or the other.

If you own a home, Michigan’s exemptions are more generous. As a homeowner, you can exempt up to $40,475 in equity under Michigan law. The exemption amount increases to $60,725 if you’re over 65 years of age or disabled. The federal exemptions are $25,150 for a single person and $50,300 for spouses who co-own.

If you don’t own a home, the federal list provides better exemptions for a vehicle ($4,000 compared to $3,725) and tools of the trade ($2,525 versus $1,000). The federal list also allows a “wildcard” exemption of $1,325 versus none in Michigan.

Under both lists, your retirement accounts are largely exempt, but the federal code caps qualified retirement savings exemptions at $1,362,800.

Qualifying for Chapter 7

A Chapter 7 filing does require a means test to prevent high-income individuals from using the process. You don’t have to be penniless by any stretch of the imagination, but you do have to show a monthly income below the median income for your household size in the state of Michigan. The means test applies only to filers who primarily have consumer debt. A business owner whose debts are primarily business-related may be able to avoid the means test.

According to the U.S. Census Bureau, the median household income in Michigan was $57,144 in 2019, though it doesn’t specify household size. It lists per capita income in 2019 dollars as $31,713.

If you fail the income means test, your other option is to file under Chapter 13. Under Chapter 13, your disposable income is computed after allowing for living expenses, and that income is then dedicated to paying off your debts over a three- to five-year period. Your debts will be consolidated — and most likely reduced in overall debt obligation — to be paid monthly.

How Chapter 7 Works

As with any form of bankruptcy filing, you will be given an “automatic stay” from all creditor activity as soon as you submit the paperwork. This means creditors cannot contact you about your debts and cannot proceed with repossession or foreclosure actions without court approval.

When you file for Chapter 7, you will be required to submit the following:

• A list of all creditors and the amount and nature of their claims

• The source, amount, and frequency of your income

• A list of all of your property

• A detailed list of your monthly living expenses

You must also complete an approved consumer credit counseling course prior to filing.

Once you file, you will be assigned a trustee who will oversee your bankruptcy. The trustee will then arrange a meeting of creditors, which you as the filer (or husband and wife as joint filers) must attend.

After the creditors’ meeting, the trustee will inform the bankruptcy court whether the filing is legitimate or abusive. If it’s deemed legitimate, your filing will move forward. Nonexempt assets will be sold with the proceeds being shared among the creditors. In a few months’ time, you will be discharged and debt-free.

Certain debt obligations cannot be discharged under any form of bankruptcy, however. This includes most student loans, alimony and child support payments, personal injury debts arising from a drunk-driving incident, and taxes. Any debts obtained in the 90 days prior to your filing will likely not be discharged.

Trust an Experienced Attorney

Chapter 7 is your best option if your debt is overwhelming, you don’t have a steady income, and you have exhausted every available resource to cover your obligations and avoid bankruptcy. In a few months’ time, you can be mostly debt-free (given the debt exclusions listed above) and enjoy a new lease on life.