Michigan Consumer Bankruptcy

Michigan residents may file for personal bankruptcy (also known as consumer bankruptcy) if they are unable to keep up on debt repayment. Personal bankruptcy is the process that occurs when you are unable to pay your debts and ask a court for assistance in either discharging (or forgiving) some of the money you owe or coming up with a play to repay creditors.

In the United States, bankruptcy falls under the jurisdiction of the federal government, and all bankruptcy cases are filed in U.S. Bankruptcy Court. However, Michigan state bankruptcy laws may also affect your bankruptcy filing.

A Michigan bankruptcy attorney in your area can fully explain Michigan and federal bankruptcy laws.

Types of Commercial & Consumer Bankruptcy in Michigan

There are several types of bankruptcy. Some of these are only available to businesses, some are only available to individuals, and some are available to both people and companies.

Most Michigan residents file for either Chapter 7 bankruptcy or Chapter 13 bankruptcy.

Michigan Bankruptcy Courts

Michigan bankruptcy cases are filed in the U.S. Bankruptcy Court closest to your home in the state of Michigan. Michigan has two bankruptcy courts:

Chapter 7 Bankruptcy in Michigan

A Chapter 7 bankruptcy is usually the quickest and simplest bankruptcy available to Michigan residents. Chapter 7 bankruptcy is sometimes known as liquidation or straight bankruptcy.

In Chapter 7 bankruptcy in Michigan, the bankruptcy trustee, who is appointed by the court, sells non-exempt property and uses the proceeds to pay off certain debts.

Debts that cannot be discharged during Chapter 7 bankruptcy include:

In addition, certain voluntary obligations, such as mortgages and car loans, would not be discharged during Chapter 7 bankruptcy in Michigan, and the Michigan resident would still have to make regular payments on those loans. Failure to make payments could result in foreclosure or repossession.

In Chapter 7 bankruptcy, the Michigan resident filing for bankruptcy (known as the debtor) is allowed to keep some property, known as exempt assets or exempt property. Non-exempt assets-or the things that are sold to pay debts-would include things such as second homes, extra cars, stocks, and other investments.

The list of exempt property in Michigan is periodically adjusted as the cost of living changes, but includes assets such as a home, car, clothing, furniture, and pension plans. Your Michigan bankruptcy attorney can give you a complete, up-to-date list of Chapter 7 bankruptcy exempt property in Michigan.

To qualify for Chapter 7 bankruptcy, you must pass a means test designed to keep high-income individuals from abusing Chapter 7 bankruptcy.

The Chapter 7 bankruptcy means test in Michigan compares your recent income to the median income of similar-sized households in Michigan. If your income exceeds the Michigan median, the means test looks at how much disposable income (or money left over each month after paying for essential items such as food and housing) you would have available to pay off debts.

As of September 2009, the Michigan median income for a one-person household was $43,456. The Michigan median income for a four-person household was $74,558.

Chapter 13 Bankruptcy in Michigan

Chapter 13 bankruptcy is the other type of bankruptcy filing most commonly used by Michigan residents.

Under Chapter 13 bankruptcy, Michigan residents with a regular source of income can get court approval to partially or fully repay debts over a three- to five-year period.

To qualify for Chapter 13 bankruptcy, the court requires you to have disposable income. There is also a cap on how much debt you may have to participate in Chapter 13 bankruptcy. This debt limit is periodically adjusted, but as of April 1, 2010, the debt limit for unsecured debt is $360,475, and the debt limit for secured debt is $1,081,400. In other words, if your debt exceeds either of those amounts, you are ineligible for Chapter 13 bankruptcy.

Other Types of Personal Bankruptcy in Michigan

There are a couple of other types of bankruptcy available to certain individuals in Michigan, though these are less commonly used. They are:

  • Chapter 11 bankruptcy, which is primarily used by corporate entities, but is also available to Michigan residents whose debt exceed the limits to qualify for Chapter 13 bankruptcy or who have too much income under the Chapter 7 means test
  • Chapter 12 bankruptcy, which is similar to Chapter 13 bankruptcy, but is available to family farmers and fishermen in Michigan

Thinking About Consumer Bankruptcy in Michigan

If you are unable to pay your debts and are considering personal bankruptcy, you should talk to a Michigan bankruptcy lawyer to understand:

  • What type of bankruptcy you qualify for
  • How the Michigan bankruptcy process works
  • How much it costs to file for bankruptcy in Michigan
  • The pros and cons of filing for bankruptcy
  • How your credit will be affected if you file for bankruptcy

A Michigan bankruptcy attorney can help you understand the process and consequences of filing for personal bankruptcy in Michigan.

Additional Michigan Bankruptcy Resources