We all know that bankruptcy used to have a notorious reputation. But things are changing—due to the recession, more and more people are taking a closer look at what bankruptcy has to offer.

In fact, bankruptcy-filing rates have risen in all 50 states including Michigan from the same time last year.

Considering more than one million Americans filed bankruptcy in 2008, that’s a significant statistic.

Many Michigan folks are turning to bankruptcy because it provides the protection of the automatic stay.

The automatic stay is a court order that’s typically issued immediately after the bankruptcy petition is filed. 

The stay prohibits creditors from further pursing debt collection efforts and has the power to:

1. STOP Foreclosure
2. PREVENT Repossession
3. HALT Lawsuits & Wage Garnishments
4. STOP Utility Shutoffs

If this sounds like the kind of relief you are looking for, read on to learn more about the two main types of personal bankruptcy: Chapter 7 and Chapter 13.

Michigan Chapter 7 Bankruptcy

This type of personal bankruptcy offers filers a discharge (elimination) of many types of unsecured debts. Unsecured debts are considered debts that aren’t tied to property, such as:

1. credit card bills
2. utility bills
3. payday loans
4. medical bills
5. parking tickets, etc.

Under Chapter 7 bankruptcy, the bankruptcy trustee has the right to liquidate (sell) a debtor’s non-exempt property in order to repay creditors. 

For this reason, Chapter 7 is typically best for people who have little or no income and rent or own a home with little equity.

A person must qualify to file this type of bankruptcy by taking the Chapter 7 means test, which determines whether a person really needs to file Chapter 7 or whether they can afford repaying their debts through Chapter 13 bankruptcy.

Michigan Chapter 13 Bankruptcy

The other form of Michigan bankruptcy is Chapter 13 bankruptcy, which deals with setting debtors on a repayment plan. This repayment plan is agreed upon by the debtor, his or her bankruptcy lawyer, the bankruptcy court and the debtor’s creditors. Under the Chapter 13 repayment plan, the debtor makes one lower monthly payment to the bankruptcy court. There is no direct contact with creditors.

During the repayment period, the debtor is typically allowed to keep his property (such as his home or cars), as long as he remains current on payments.

At the end of the repayment plan (which generally lasts between three and five years), the bankruptcy court has the option to discharge the debtor’s remaining unsecured debts.

Chapter 13 is often an attractive bankruptcy option for people facing foreclosure of their home or repossession of their cars or other property.
 
Unlike Chapter 7, there’s no test a person must take to file Chapter 13, but they will likely need a steady income so they can keep current with their repayments.

Bankruptcy Questions?

If you’re considering filing bankruptcy, a bankruptcy lawyer can be a good person to talk to about your options. 
A Michigan bankruptcy lawyer can help you determine which type of personal bankruptcy (if any) may be best for your circumstance.