Chapter 7

Chapter 7 Bankruptcy is referred to as “straight bankruptcy” or total liquidation. In this chapter, an individual is required to complete a Chapter 7 Bankruptcy Petition where they disclose every asset and every debt owed. However, prior to filing for Chapter 7 Bankruptcy, the debtor must complete a “means test” or budget analysis to determine whether they can file for Chapter 7 Bankruptcy or must file for Chapter 13 Bankruptcy instead.

If the debtor is allowed to file for Chapter 7 Bankruptcy, the debtor is required to undergo a “briefing” with a credit counseling agency within 180 days preceding the date of filing for bankruptcy. Upon completion of the “briefing,” the credit counseling agency will provide the debtor with a Pre-Bankruptcy Briefing Certificate. The debtor will also have to complete a “Personal Financial Management Course” as a condition of receiving a discharge in bankruptcy. Finally, the debtor must have filed all Federal, State and Local tax returns for the last 4 years that were due, in order to be eligible for filing Chapter 7 Bankruptcy.

If Chapter 7 is allowed, a Chapter 7 Bankruptcy Petition, along with the mandatory certificates and pre-qualification paperwork is filed with the US Bankruptcy Court, and notice of the bankruptcy is given to all creditors that you have listed. The notice also instructs all creditors to cease collection activity.

After a debtor files for Chapter 7 Bankruptcy, the debtor must appear in Federal Court so that creditors and a court-appointed “trustee” can question the debtor with regard to their assets and debts and the financial circumstances that led to filing for bankruptcy. In addition, any trustees or Creditors will have the right to review all of the debtor’s most recent tax returns or transcripts of these returns.

If you are having difficulty paying rent, groceries, utilities and/or your necessary everyday expenses before you even begin to think about past due bills, a Chapter 7 Bankruptcy is most likely the appropriate course of action for you.

Chapter 13

Chapter 13 Bankruptcy, also called “a wage earner plan” is a way of restructuring a full or partial repayment of your debts. Similar to a Chapter 7 Bankruptcy, a person seeking a Chapter 13 Bankruptcy must, within 180 days preceding the date of filing the bankruptcy, seek a “briefing” with a Credit Counseling Agency. Then, the attorney and client will carefully examine the client’s financial needs to determine an amount the client can comfortably afford to pay. Furthermore, a reasonable “allowance” will be given for rent, groceries, utilities, clothing, car payment and expenses, recreation, insurance, etc. After deducting all of these necessary expenses from the client’s income, the amount remaining (“net disposable income”) is then committed to a monthly payment plan, usually a five year period (with the first plan payment due the next pay period after filing).

Creditors and the court-appointed Chapter 13 Trustee have the right to object to the debtor’s proposed plan of reorganization. These objections have to be addressed before the Judge will approve the Chapter 13 plan.

A Chapter 13 Bankruptcy may prevent creditors from suing co-signers (such as a parent or spouse). It will allow the payment of past due mortgage payments over a period up to 60 months. It also may allow the debtor to restructure a delinquent car loan or allow the payment of past due tax liabilities at no additional interest or penalties.

Although every case is different, if you have a fairly secure job and can afford to pay something towards your bills, and you have a desire to repay your creditors at least a portion of what you owe, then Chapter 13 Bankruptcy may be the appropriate option for you.

Discharging your Debt

Upon filing Chapter 7 or 13, your creditors must stop all attempts to collect a debt from you. This means that they may not call or write you; they may not attach a lien to your car or property; and if they already sued you, they must dismiss the lawsuit. Basic utility providers, such as your phone, gas or electric providers must reinstate your service, but they might be entitled to a deposit.

Bankruptcy vs. Divorce

Whether to file for Bankruptcy or Divorce simultaneously or separately can affect your financial state of affairs. It is important that you consult an experienced Michigan bankruptcy attorney in order to obtain a full understanding of your rights. To learn more about how filing for Divorce and/or Bankruptcy will affect you, please call the Law Offices of Robbins and Licavoli today.

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