Welcome to our Michigan Bankruptcy FAQ. These Frequently Asked Questions about the Chapter 7 and Chapter 13 bankruptcy process will give you a good, quick overview of a complex process.
If you are located in Detroit, Livonia, Ann Arbor, Farmington, Redford, Westland, Wayne, Dearborn, Southfield, Oak Park, or elsewhere in the Metro area, you need to know how the bankruptcy process works locally.
Our attorneys have assembled this Bankruptcy FAQ to lay out some essentials.
- What is Chapter 7 bankruptcy?
Chapter 7 bankruptcy is a “liquidation” bankruptcy in which you are able to legally discharge your obligation to pay back nearly all of your debts of any sort without any remaining legal ability of your creditors to pursue you for collections afterward. Some debts cannot be discharged in Chapter 7 bankruptcy, and there are some income eligibility standards that you must meet. Additionally, there is a small chance in Chapter 7 of having some your personal assets sold off by the bankruptcy court for the benefit of your creditors. Read more about Chapter 7 bankruptcy here.
- What is Chapter 13 bankruptcy?
Chapter 13 bankruptcy is a “reorganization” bankruptcy in which you participate in a Federal court-enforced repayment plan in order to repay some of what you own on your debts, the balance that is unpaid to be totally discharged just as in a Chapter 7 bankruptcy. Chapter 13 is the form of bankruptcy available to people who do not meet the income eligibility standards for Chapter 7, as well as for those who have property they do not want to have liquidated in a Chapter 7, who need to use the Chapter 13 bankruptcy process to catch up on mortgage or car payments to stop a foreclosure or repossession, who want to strip off and discharge a second mortgage or home equity loan, or who need to catch up safely on tax payments or child or spousal support.
- When will my creditors stop harassing me?
The moment The Hilla Law Firm, PLLC files your Chapter 7 or Chapter 13 petition, creditors must cease engaging in any activity that constitutes a collection activity or be liable for severe sanctions from the Federal Bankruptcy Court. Such activities include phone-calls, letters or bills mailed, lawsuit pursuit, garnishment, foreclosure, the perfection of liens, and more. You will truly see a difference in your daily peace of mind as quickly as the day after you file your bankruptcy petition.
- Do I have to take a credit counseling course?
You will, in either a Chapter 7 or Chapter 13 bankruptcy, be required to take two online or by-telephone credit counseling courses: one before we file your petition, one after we file your petition.
- Will my bankruptcy affect my spouse?
If you are married, you have the option of filing a joint bankruptcy petition along with your spouse, but, if you and your spouse do not wish to do so, you need not worry that your bankruptcy will affect your spouse’s credit. A bankruptcy filing is tied to an individual Social Security Number, and to that number only. Your bankruptcy will not appear on your spouse’s credit report or affect his or her credit. The bankruptcy court will have no jurisdiction over your non-filing spouse’s assets. Neither will your bankruptcy discharge, however, your spouse’s liability for his or her own debts or for his or her liability for any joint debts that you share.
- Can I keep my credit cards after filing?
You must by law disclose and include all debts of any sort in your bankruptcy petition. It is a myth that you can file bankruptcy only on some debts and keep others. All unsecured debts, which include credit-cards, must be listed and will be discharged entirely. If you have a credit-card with a zero balance, it is not a debt that will be listed as such in your bankruptcy petition, but, in nearly every case, credit-card issuers will close your line of credit card out after you file once they receive notice of the filing from the credit bureaus. However, you will receive many solicitations for new credit cards after you receive your bankruptcy discharge, though you will want to be cautious as to the interest-rates offered.
- How much of my stuff am I allowed to keep?
Your personal assets are only in danger of being liquidated—which is to say, sold off for the benefit of your creditors whose debts are otherwise to be totally discharged—in a Chapter 7 bankruptcy. However, in the vast majority of Chapter 7 bankruptcies, no one loses a thing. The Bankruptcy Code provides protections for certain types of property up to certain dollar-value limits. These limits are sufficient to protect most, if not all, of what the average household possesses.
Certain types of property may be more difficult to fully protect, but The Hilla Law Firm, PLLC is highly experienced at the protection of assets in Chapter 7 bankruptcy and in dealing with the Chapter 7 Trustees who are responsible for the liquidation of assets. We can’t promise you that you won’t lose anything, but we will be able to give you a reasonable expectation of the odds of this happening even as early as your initial consultation with Attorney John Hilla if you are able to provide us with good information as to the nature and fair-market value of your assets.
- I filed for bankruptcy before … When can I do it again?
If your prior bankruptcy was a Chapter 7 bankruptcy, you are eligible for another Chapter 7 eight years + one day from the date that your last Chapter 7 was filed. You will be eligible for a Chapter 13 bankruptcy four years + one day from the date of filing of your prior Chapter 7.
If your prior bankruptcy was a Chapter 13 bankruptcy, you are eligible for either another Chapter 13 or a Chapter 13 bankruptcy four years + day from the date of filing of your prior bankruptcy. Additionally, you may otherwise file another Chapter 13 almost anytime, depending on how your prior Chapter 13 concluded (there may be a 180-day bar to re-filing a bankruptcy case under some circumstances) after a prior Chapter 13, though you would not be eligible for an actual discharge within the four year period from your prior 13. A Chapter 13 payment plan and the court order to creditors to comply with it can be useful even when a formal discharge is not allowed.
- Can I be fired for filing for bankruptcy?
No. Federal law prohibits employment discrimination due to a bankruptcy filing.
- Will I be able to obtain student loans after filing for bankruptcy?
Yes. Federal law prohibits discrimination with regard to student loan lending due to prior bankruptcy filings.
- How much does bankruptcy cost?
Visit our Bankruptcy Rates page to read more about this topic.
- Can I Discharge a Judgment?
You can file a bankruptcy to discharge a judgment and prevent future collection of the judgment. However, once the judgment is issued by a Michigan state or other court, filing a bankruptcy afterward will not reverse or overturn the judgment or remove it from the “Public Records” section of your credit-report.
If you are being sued, contact The Hilla Law Firm, PLLC immediately to schedule a free, initial consultation so that we can explore the possibility of filing your bankruptcy prior to the issuance of a judgment or default judgment in order to keep it off of your credit report.
Some judgments will not be dischargeable by a bankruptcy, however. Specifically, certain claims involving fraud or misuse of trust funds or employee wages or benefit plan contributions, as well as intentional torts, may not be dischargeable. Court orders for child or spousal supports or judgment arising from a failure to comply with court-ordered domestic support obligations of these sorts may not be dischargeable in bankruptcy. Nearly all of these types of judgments can still be treated in a Chapter 13 payment plan, however.
- Can utility bills be discharged in bankruptcy?
Yes. Past-due utility deficiencies can be discharged in bankruptcy. Typically, if you want to keep utilizing the utility service in your home (as opposed to a home you have surrendered and have moved away from), the service will close your account down and begin a new account with a new account number from the date of filing of your bankruptcy petition. The utility service may require a security deposit to open the new account.
Water bills in Michigan typically “run with the land.” That is, if you are surrendering your home through the bankruptcy, you will not be responsible for the water-bill; it will be up to the foreclosing bank or subsequent purchaser to manage.
- Do I have to be an American citizen to file bankruptcy?
No. Anyone in the United States may file for bankruptcy if their debts and property are located here. Americans living abroad as members of the United States military or in other capacities may also file bankruptcy in the United States.
- Are property taxes dischargeable in bankruptcy?
Property taxes are not dischargeable in bankruptcy, but, in Michigan, such taxes typically “run with the land” and a foreclosing bank or subsequent purchaser of the real estate will be responsible for them.
If the property is not being surrendered, property taxes may be brought current, saving a home from tax foreclosure, through a Chapter 13 bankruptcy payment plan.
- Are student loans dischargeable in bankruptcy?
Student loans are not dischargeable in bankruptcy unless a very high standard of “undue hardship” is met due to changes made to the US Bankruptcy Code by Congress under influence of the student loan lending industry in 2005. Case-law in the bankruptcy courts have determined that “undue hardship” means much more than a simple inability to pay.
The discharge of student loans in bankruptcy requires a separate lawsuit called an adversary proceeding to obtain a declaration by the Bankruptcy Court that a student loan is discharged.
This is a difficult judgment to obtain in Bankruptcy Court—but it does happen. If you are drowning in unmanageable student loan debt, please contact us to schedule a free, initial consultation so that we can determine together whether your student loans may be dischargeable.
- Will I lose my retirement savings?
401(k)s, IRAs, 403(b)s, and nearly all other retirement accounts are totally protected in Chapter 7 bankruptcy. Assets of any sort are not liquidated at all in a Chapter 13 bankruptcy.
There are instances, however, in which certain types of rollover IRAs and other instruments can be exposed to liquidation in Chapter 7 bankruptcy. Schedule a free, initial consultation with The Hilla Law Firm, PLLC so that we may determine whether a Chapter 7 is the best form of bankruptcy for you or whether a Chapter 13 bankruptcy is more suitable for the protection of your assets.
- Will everyone know that I’ve filed for bankruptcy?
Unless you apply for credit, apply for a job that requires a credit review, apply for a form of licensing that requires a credit review, or tell people about your bankruptcy, it is unlikely that anyone will find out about it. Although a bankruptcy filing is public information, short of the above scenarios, someone would need to know how to log onto the Federal Court System’s PACER document filing website in order to run a specific search for you in order to discover your filing. Generally, if you don’t tell people that you have filed for bankruptcy, they aren’t going to know about it.
- If I own a business, will my personal bankruptcy affect my business?
The interplay between a personal bankruptcy filing and the operation of a business you may own or have an ownership interest is one of the most complex areas of bankruptcy practice. In a Chapter 7 bankruptcy, your ownership share percentage of a business is a personal asset that must be listed and protected in the bankruptcy just like any other asset, such as a car or the sofa in your living-room. If the business has book-value in terms of its assets vs. its liabilities, a Chapter 7 may be a very dangerous proposition if you wish to continue running the business as the Chapter 7 Trustee assigned to your case by the Bankruptcy Court will have the power to “stand in your shoes” with regard to the business and, potentially, to wind it down, liquidate its assets, write resolutions on the corporation’s behalf, and otherwise interfere with its operation.
A Chapter 13 bankruptcy, in which no assets are liquidated, is nearly always the better form of bankruptcy for individuals wishing to continue operating a personally owned corporation. In a Chapter 13, the value of the business does play a role in the amount of the monthly Chapter 13 plan payment you will have to pay each month, but no one will take the business from you. To the contrary, if it is your source of income, your continued operation of the business is necessary for the feasibility of the Chapter 13 payment plan. Without income, you cannot make your payments.
Aside from the possibility of liquidation of the corporate asset, however, an incorporated business or LLC, PLLC, etc.., is a separate legal entity. Your filing a personal bankruptcy does not mean that the business has filed bankruptcy. You can discharge your personal liability for personally guaranteed business debts while the business continues its operations.
The Hilla Law Firm, PLLC has guided many clients with business ownership interests through both Chapter 7 and Chapter 13 bankruptcy. The nature, assets, and value of the business play a great role in the analysis of which form of bankruptcy is better for you. Schedule a free, initial consultation with us in order to begin charting the right course of action for you and for your business.
- Do I need a lawyer to file for bankruptcy?
You are not legally required to retain an attorney to help you with your Chapter 7 or Chapter 13 bankruptcy. However, it is wise to do so, even if you are convinced that you have a “simple” case and that filing a Chapter 7 bankruptcy is simply a matter of filling out some forms.
What appears to be a “simple” Chapter 7 often turns out to be something quite different. If you are not sure what exemption to apply to a rollover IRA containing funds inherited from a deceased parent, or if you are not sure whether you should repay your grandmother back the $1,000 she loaned you before filing, you should contact us to schedule a free, initial consultation to talk about retain experienced counsel like The Hilla Law Firm, PLLC to help you through the process. If you’re not sure what you would do if a Chapter 7 Trustee sent you a letter demanding turnover of the car you need to get to work, you need a lawyer.
Simple questions in bankruptcy have complex answers. Bankruptcy is a specialized legal practice area that requires intense, focused study and full-time attention. Beware of attorneys who advertise expertise in a dozen different practice areas, only one of which is bankruptcy: it is a fair indication that they have not given bankruptcy the level of attention it requires.
If a general practice attorney is ill-advised to take on bankruptcy cases, a non-attorney is likewise very ill-advised to do so. A non-attorney should think seriously about the odds of success in filing a Chapter 13 bankruptcy without experienced legal representation to be sure.
For over 16 years, The Hilla Law Firm PLLC has successfully eased Metro Detroiters through the Chapter 7 and Chapter 13 bankruptcy processes.
To learn more and to discuss your options for a fresh start and relief from debt, contact us at (313) 380-0492 or click the button below to schedule your free initial bankruptcy consultation.