Generally speaking, no one will know that you’ve filed bankruptcy in Michigan unless you tell them.
However, there are exceptions to this rule of thumb. Some of these exceptions are obvious. Some are less obvious.
This Article will discuss the confidentiality of your Metro Detroit Chapter 7 or Chapter 13 bankruptcy filing—or occasional lack thereof.
Who Will Know I’ve Filed Bankruptcy, Part One: The Obvious
The most obvious parties to learn of your southeast Michigan bankruptcy filing will be your creditors and other initial “notice parties.” These are the parties that are informed of your bankruptcy filing immediately by way of notice from the Bankruptcy Court itself.
Notice of Filing to Your Creditors
The Federal bankruptcy process is, after all, a legal means of discharging debt that you rightfully owe by means of contract or court order.
When you file a Chapter 7 or Chapter 13 bankruptcy case in Michigan, your creditors are immediately prohibited from engaging in any collections activity whatsoever.
This prohibition is actually a Federal injunction called the Automatic Stay against Collections. Any creditor who violates the Automatic Stay willfully will be sanctioned by the US Bankruptcy Court. That is, the creditor will have to pay money for its violation.
However, in order to comply with the Automatic Stay, the creditor must know that you have filed a bankruptcy case to begin with.
Thus, within a few days of filing your Chapter 7 or Chapter 13 case in the Eastern District of Michigan Bankruptcy Court, the Court will automatically mail a “Notice of Commencement” to all of the creditors listed in your bankruptcy petition.
This Notice of Commencement informs the creditor that it must comply with the Automatic Stay, as well as the date, time, and location of your 341 Meeting of Creditors.
It is important to remember that your creditors include not only those debts you hope to discharge specifically (such as credit card or medical debt) but anyone you owe money to for any reason.
For example, if you owe your grandmother $50.00 by way of a verbal promise to repay only, she needs to be listed on your petition—and she will also receive a Notice of Commencement.
If you are current in your home mortgage or car loan payments and want to keep the home or car involved in the loan, you still have to list those debts. Your mortgage servicers or car loan lender will receive notice of your Michigan bankruptcy filing.
A child or spousal support recipient must also be disclosed as a creditor and will receive notice of the filing, even though such debts are never dischargeable in bankruptcy.
Other Notice Parties
Some slightly less obvious parties will also be issued Notices of Commencement upon the filing of your Detroit, Livonia, Ann Arbor, Farmington, Plymouth, Northville, Redford, Taylor, Wayne, Westland, or other Michigan bankruptcy case.
These parties include:
- Landlords and other “lessors”
A party with whom you sign an “executory contract” or lease is a creditor as defined in the US Bankruptcy Code. (This is the Federal statute governing the bankruptcy process sin the U.S.) This is, again, true even if you have paid the rent or contractually payment and intend to continue doing so after filing.
It is possible to reject a lease and dump a leased vehicle or rental premises in Chapter 7 or Chapter 13 bankruptcy. Thus, those parties are entitled to be informed of the filing of the bankruptcy case.
A person who co-signs a debtor for you—or for whom you’ve co-signed a debt—is also a “creditor” and notice party pursuant to the US Bankruptcy Code.
Co-debtors are potentially your creditors as well because, outside of the bankruptcy process, if you fail to pay a debt for which that person has co-signed, the creditor will collect from them.
Likewise, if you co-sign a debt for someone else, you owe the debt as fully as that “primary borrower” does.
The obligation to the co-debtor or obligation caused by the co-signed debt must be disclosed either way under Federal law.
Well-meaning co-signors are also entitled to be notified of the filing because they will be left holding the liability for the debt fully once you discharge your own liability with the Chapter 7 or Chapter 13.
It is worth remembering, for this purpose, that, unless a contract specifically stipulates otherwise (and few do) that the roles of “primary” and “secondary” signor of a loan contract or note have any legal weight whatsoever, you and your co-signor are going to be “jointly be severally liable.”
That is, you are both responsible for 100% of the debt balance.
It is almost never the case under Michigan law that you are responsible for only 50% while your co-signor is responsible for the other 50%.
Who Will Know I’ve Filed Bankruptcy, Part Two: The Less Obvious
A number of other people or parties may potentially come to learn of your Michigan bankruptcy filing as the process unfolds.
Some of the more common “less obvious” people who will know you’ve filed bankruptcy include the following:
- Your Employer
Your boss or employer will only know of your Michigan bankruptcy filing under a few different circumstances.
First, if you tell your employer that you have filed for bankruptcy, they’ll know. Naturally.
This wage deduction order is like a garnishment order issued by a State court. The difference is that you want to Chapter 13 plan payment to be paid to take care of all of your debt, whereas you really, really don’t want 25% of your paycheck garnished forcibly by one single creditor.
Upon receipt of a Chapter 13 wage order, your boss will know you’ve filed bankruptcy.
The Bankruptcy Court will not entertain modifying this standard “local court rule” because you are bashful about this. (So don’t ask!)
- People To Whom You’ve Sold or Transferred Property
In a Chapter 7 bankruptcy in particular, there is the possibility that people to whom you have sold or transferred property prior to filing the case will know that you’ve filed bankruptcy.
They will know this when the Chapter 7 Trustee pursues them with a legal demand and, if necessary, an action demanding turnover of the transferred property.
This does not happen all of the time in Chapter 7, fear not. But a Chapter 7 is a “liquidation” bankruptcy. This means that, in return for the discharge of your legal obligation to pay any of your creditors at all (with exceptions), valuable property that you own may be seized and liquidated in order to generate money for your creditors.
If no property is liquidated, your creditors receive nothing in a Chapter 7. This is how roughly 90% of Chapter 7 bankruptcy cases in Michigan conclude.
However, in addition to possessing the power to liquidate your property, the Chapter 7 Trustee assigned to your case also has the power to recover and liquidate property that has been “fraudulently transferred.”
Under the Bankruptcy Code, a fraudulent transfer is a transfer of property (or cash) for less than it is worth (“less than reasonably equivalent value”) within certain timeframes prior to the filing of the case.
For example, if you sell your 2022 Maserati to your cousin for $1.00 a few weeks before filing Chapter 7, that’s fraud. The Chapter 7 Trustee will get that Maserati from your cousin (one way or another)—and your cousin will then be alerted as to the filing.
- Creditors You’ve Already Paid in Full
The Chapter 7 Trustee also has the power to retrieve what are known as “preference payments” from creditors to whom you’ve paid too much money prior to filing.
Isn’t paying your creditors the right thing to do, you ask?
Well, no, believe it or not. The Bankruptcy Code requires that all creditors of similar classification (secured vs. unsecured, etcetera) receive the same distribution from your bankruptcy case. That is, no unsecured creditor, namely, can receive more money than do your other unsecured creditors.
Thus, if you repay a creditor a certain amount within a certain timeframe prior to filing, the Chapter 7 Trustee can go and retrieve that money from that creditor in order to take her cut of the proceeds and then distribute whatever remains to the other unsecured creditors, even-Steven-style.
For normal commercial creditors, this “look-back preference period” is 90 days.
If the creditor is an “insider,” such as a family member, spouse or other significant other, employer, or someone else with influence over you, the look-back period is 1 year.
So you may hurry to repay your grandmother the $600 you owe her in the hope that she won’t know that you’ve filed Chapter 7—but she will find out when the Chapter 7 Trustee comes knocking.
Who Will NOT Know I’ve Filed for Bankruptcy if I Don’t Tell Them?
How about other friends, family members, neighbors, your church pastor, or the other members of your board gaming group? Will they know you’ve filed for bankruptcy in Michigan?
No one else will know you’ve filed for bankruptcy unless you tell them.
Who Else Will Know I’ve Filed Bankruptcy? Your Michigan Bankruptcy Attorney.
At the end of the day, fear of personal embarrassment should not keep you from exploring your options for debt freedom. The welfare of your family and your future should be your most important consideration—not what anyone else thinks about the options.
In any case, more of your friends and family members (and church congregation) have filed for bankruptcy than you even know.
Why don’t you know? They didn’t tell you—and it wasn’t any of your business. Nor is it theirs.
If you are considering filing for Chapter 7 or Chapter 13 bankruptcy in Metro Detroit, the one person you should discuss your options with is an experienced Michigan bankruptcy attorney.
The Hilla Law Firm has successfully represented hundreds of clients through Chapter 7 and Chapter 13 bankruptcy processes in Michigan.
Offering free, virtual consultations and friendly, one-on-one service from Livonia bankruptcy attorney John Hilla, we will ensure that your matter is handled properly, competently—and with kindness.