Chapter 7 Bankruptcy Legal Services

What is a Michigan Chapter 7 Bankruptcy?

In Michigan Chapter 7 Bankruptcy, the debtor’s (filer’s) nonexempt assets are gathered up and sold. The proceeds of these assets are then used to pay holders of claims (creditors) in accordance with the provisions of the Bankruptcy Code. Part of the debtor’s property may be subject to liens and mortgages that pledge the property to other creditors. In addition, the Bankruptcy Code will allow the debtor to keep certain “exempt” property; but a trustee will liquidate the debtor’s remaining assets. For this reason, potential debtors should realize that the filing of a petition under Chapter 7 Bankruptcy might result in the loss of property.

One of the primary purposes of a Michigan bankruptcy is to discharge certain debts to give an honest individual debtor a “fresh start.” The debtor has no liability for discharged debts. However, in a Chapter 7 Bankruptcy case, a discharge is only available to individual debtors, not to partnerships or corporations. Although an individual Chapter 7 Bankruptcy case usually results in a discharge of debts, the right to a discharge is not absolute, and some types of debts are not discharged. Moreover, a bankruptcy discharge does not extinguish a lien on property.

Who is eligible to file for Chapter 7 Bankruptcy in Michigan?

In Michigan, an individual, a partnership, or a corporation or other business entity may file for Chapter 7 Bankruptcy. The individual, partnership, or corporation filing for bankruptcy is known as the debtor.

There are no restrictions on the amount of debt carried by the individual filing for bankruptcy in Michigan or whether the debt is solvent or insolvent. However, there are restrictions in relation to whether an individual has previously filed for bankruptcy. A lawyer can advise about these restrictions. Individuals may not file for bankruptcy if during the preceding 180 days a prior bankruptcy petition was dismissed due to the debtor’s willful failure to appear before the court or comply with orders of the court, or the debtor voluntarily dismissed the previous case after creditors sought relief from the bankruptcy court to recover property upon which they hold liens.

In addition, no individual may be a debtor under Chapter 7 Bankruptcy in Michigan or any chapter of the Bankruptcy Code unless he or she has, within 180 days before filing, received credit counseling from an approved credit-counseling agency either in an individual or group briefing. There are exceptions in emergency situations or where the U.S. trustee (or bankruptcy administrator) has determined that there are insufficient approved agencies to provide the required counseling. If a debt management plan is developed during required credit counseling, it must be filed with the court. A lawyer can advise about filing a debt management plan.

Discharge of debts

A discharge releases individual debtors from personal liability for most debts and prevents the creditors owed those debts from taking any collection actions against the debtor. Chapter 7 Bankruptcy discharge in Michigan is subject to many exceptions so debtors should consult a bankruptcy attorney before filing and learn about discharge. With the exception of cases that are dismissed or converted, individual debtors usually receive a discharge in more than 99 percent of Chapter 7 Bankruptcy cases. Generally the bankruptcy court will issue a discharge order relatively early in the case (usually 60 to 90 days after the date first set for the meeting of creditors) unless a party in interest files a complaint objecting to the discharge or a motion to extend the time to object.

What kinds of property may be kept or lost?

Secured creditors may retain some rights to seize property securing an underlying debt even after a discharge is granted. Depending on individual circumstances, if a debtor wishes to keep certain secured property (such as an automobile), he or she may decide to “reaffirm” the debt. A reaffirmation is an agreement between the debtor and the creditor that the debtor will remain liable and will pay all or a portion of the money owed, even though the debt would otherwise be discharged in the bankruptcy. In return, the creditor promises that it will not repossess or take back the automobile or other property so long as the debtor continues to pay the debt. A lawyer can advise more about the types of property that may be kept or lost in Michigan.

If the debtor decides to reaffirm a debt, he or she must do so before the discharge is entered. The debtor must sign a written reaffirmation agreement and file it with the court. The Bankruptcy Code requires that reaffirmation agreements contain an extensive set of disclosures. The disclosures must advise the debtor of the amount of the debt being reaffirmed and how it is calculated and that reaffirmation means that the debtor’s personal liability for that debt will not be discharged in the bankruptcy. The disclosures also require the debtor to sign and file a statement of his or her current income and expenses showing that the balance of income paying expenses is sufficient to pay the reaffirmed debt. If the balance is not enough to pay the debt to be reaffirmed, there is a presumption of undue hardship, and the court may decide not to approve the reaffirmation agreement.

What kinds of debt may and may not be discharged?

An individual receives a discharge for most of his or her debts in Michigan in a Chapter 7 Bankruptcy case. A creditor may no longer initiate or continue any legal or other action against the debtor to collect a discharged debt. But not all of an individual’s debts are discharged in Chapter 7 Bankruptcy. Please call the Dailey Law Firm of Michigan at 248-744-5005 to discuss discharge of debt.

Debts that may not be discharged include debts for alimony and child support, certain taxes, debts for certain educational benefit overpayments or loans made or guaranteed by a governmental unit, debts for willful and malicious injury by the debtor to another entity or to the property of another entity, debts for death or personal injury caused by the debtor’s operation of a motor vehicle while the debtor was intoxicated from alcohol or other substances, and debts for certain criminal restitution orders. The debtor will continue to be liable for these types of debts to the extent that they are not paid in the Chapter 7 Michigan Bankruptcy case.

Debts that may be discharged include debts for money or property obtained by false pretenses, debts for fraud or defalcation while acting in a fiduciary capacity, and debts for willful and malicious injury by the debtor to another entity or to the property of another entity. These debts may be discharged unless a creditor files and prevails in an action to have such debts declared non-dischargeable.

What are the steps in filing for Chapter 7 Bankruptcy in Michigan?

A Michigan Chapter 7 Bankruptcy case begins with the debtor filing a petition with the bankruptcy court serving the area where the individual lives or where the business debtor is organized or has its principal place of business or principal assets. The debtor must also file with the court: (1) schedules of assets and liabilities; (2) a schedule of current income and expenditures; (3) a statement of financial affairs; and (4) a schedule of executory contracts and unexpired leases. Debtors must also provide a copy of the tax return or transcripts for the most recent tax year as well as tax returns filed during the case (including tax returns for prior years that had not been filed when the case began) to the assigned case trustee.

Individual debtors with primarily consumer debts have additional document filing requirements. A lawyer can guide the debtor through this process to ensure that all documents are properly filed.

In order to complete the Official Bankruptcy Forms that make up the petition, statement of financial affairs, and schedules, the debtor must provide the following information:

A list of all creditors and the amount and nature of their claims;
The source, amount, and frequency of the debtor’s income;
A list of all of the debtor’s property; and
A detailed list of the debtor’s monthly living expenses, i.e., food, clothing, shelter, utilities, taxes, transportation, medicine, etc.
Married individuals must gather this information for their spouse regardless of whether they are filing a joint petition, separate individual petitions, or even if only one spouse is filing.