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Detroit
Bankruptcy Lawyer Walter Metzen
has prepared this comprehensive
information bankruptcy site to help come to
terms with consumer debt and bankruptcy. If
consumer debt has you buried, if creditors
are calling at all hours, if you have been
threatened with lawsuits and other
collection activities, you will find
information in this bankruptcy site to help
you.
This site is about credit management,
debt relief,
Chapter 7 Liquidation Bankruptcy, and
Chapter 13 Wage Earner Bankruptcy.
DetroitBankruptcyLawyer.com
Attorney Walter Metzen is an
experienced bankruptcy lawyer who
specializes in helping consumers with
credit, debt, Chapter 7 Straight Bankruptcy
and Chapter 13 Wage Earner (Repayment
Plan/Bill consolidation) Bankruptcy.
Filing Bankruptcy in Michigan
Of course, often it is not possible
to satisfactorily negotiate a settlement
with your creditors. Perhaps your credit
card debt or other unsecured debt is
overwhelming, with no reasonable
prospect of ever paying it back. In this
situation, the most responsible step to
take for you and your family may be to
obtain a financial fresh start through a
Chapter 7 Bankruptcy . Or, if your
mortgage company has started a
foreclosure of your home or your vehicle
has been seized, the possibility of
working this out with your creditor is
very slim. In this case, you will have
to file a
Chapter 13 Bankruptcy to save your
property.
Should I File Under Chapter 7 or Chapter
13?
You must ultimately decide for
yourself whether filing bankruptcy is
the proper action to take, and if so,
which Chapter is better for you. Some of
the factors to consider are as follows:
- If you are not making more money
than you need for your current
living expenses (you have no
disposable income), Chapter 13 is
not a realistic option.
- Chapter 7 has the advantage of
wiping the slate clean and enabling
you to embark on your
fresh start immediately. With
Chapter 13 you will be making
payments for three to five years.
- If you have a particular asset
that you want to keep and that is
valued above the allowable exemption
then Chapter 13 may be the only
alternative. For example, if you own
a house with significantly more than
$25,000.00 in equity and you don't
want to lose it, Chapter 7 probably
will not work.
- If you are trying to ward off a
repossession or a foreclosure,
Chapter 7 will not help you, and you
will need to file a Chapter 13.
- If your debts are primarily
consumer debts, and if your budget
reveals that after filing bankruptcy
your income substantially exceeds
your expenses, it is possible that
the United States Trustee could file
a motion to dismiss the
Chapter 7
case for substantial abuse. In
such a case
Chapter 13 may be the better
alternative.
Chapter 7 is commonly known as
straight or liquidation
bankruptcy.
Under this chapter, you are seeking to
have your debts discharged, which means
the legal obligation to pay creditors is
canceled. You can pay all or some
creditors after bankruptcy if you feel
morally obligated, but is not legally
required. You can file Chapter 7 no more
than once every 6 years.
Certain types of debts are
non-dischargeable. With some exceptions,
they include student loans, taxes,
alimony and child support, fraudulent
debts, debts for embezzlement or
larceny, debts incurred from purchasing
luxury items or for taking large cash
advances shortly before filing, fines
and penalties, debts incurred as a
result of a willful or malicious injury,
unscheduled debts and debts denied
discharge in a prior bankruptcy.
Secured debts are fully dischargeable
but you may lose the collateral because
valid liens survive bankruptcy, and the
creditor is free to repossess or
foreclose on the collateral once the
bankruptcy case is concluded. If you
want to keep the collateral you must
reaffirm the debt.
Reaffirmation means a legal
re-obligation to pay the debt as if the
bankruptcy never occurred. In exchange
for reaffirming the creditor will allow
you to keep the pledged property because
the creditor is assured payment.
Reaffirming requires that you sign a
written contract that is filed with the
court. You will most likely want to
reaffirm on your home and automobile,
but not charge cards or other debts
unless there is good reason.
Once your petition is filed, a
trustee
is appointed to represent the best
interest of your creditors. The trustee
is given broad power under the law. He
can set aside improper transfers of
property, and can even recover money
paid to creditors shortly before filing.
The trustee makes sure that all
creditors are treated fairly and equally
in the bankruptcy proceeding.
- Most importantly, however, the
trustee is responsible for
collecting and liquidating certain
valuable assets at a bankruptcy
sale. Your creditors are notified of
the sale and have an opportunity to
bid, or object to someone else's
bid. Sale proceeds are distributed
to creditors based upon the
classification and priority of their
debt. Any money left over is
returned to you after creditors and
administrative expenses are paid.
The trustee theoretically has an
interest in all non-exempt assets
you own up to the date the petition
is filed. These assets, as a group,
are called the
bankruptcy
estate. With limited exception,
property you acquire after filing
does not become part of the
bankruptcy estate, and can not be
taken by the trustee.
- Does this mean you lose
everything? Not at all. In most
cases, your valuable property is
either secured or exempt. Much of
your other property, as a practical
matter, may not be worth the expense
of conducting a sale. A typical rule
of thumb is that property with a
value of less than $1000 will not be
sold by a trustee.
The laws allow you to keep
certain property above any liens or
encumbrances to preserve your
ability to live. These are called
property exemptions. Exempt
property, up to certain value
limits, includes your home, vehicle,
furniture, appliances and various
other personal possessions. A
complete list of
exempt property is found under
this site on the
Michigan Bankruptcy Exemptions page.
Can the trustee sell secured
property? If the trustee sells
secured property, he must first pay
off the lien.
Therefore, the trustee will not sell
any secured property that at a
minimum does not exceed the value of
the lien. Therefore, if you can
afford the payments on the
secured debts, you can reaffirm
with the creditor to keep the
collateral if you choose.
For this reason, most people can
keep their home and automobile, as
there is usually limited
equity in such property. A home,
for example, may have a secured
mortgage which leaves little or
no equity in the property. Equity is
further eroded if you deduct 10% of
the home's sale price as an estimate
of closing costs. In New York, a
husband and wife can exempt up to
$20,000 of equity in their home.
As long as equity does not exceed
the
exemption amount, the trustee is
left with nothing to distribute to
unsecured creditors if the property
were sold. Therefore, the home has
no value to the bankruptcy estate,
and the trustee will not sell the
property. The same holds true for a
motor vehicle with equity less than
$2,400.
Approximately 45 days after
filing the petition, you are
required to attend a meeting, known
as the Section 341 first meeting of
creditors. There, the trustee
will determine whether there are
assets to be liquidated, or whether
there has been any improper conduct
affecting your case. There is
usually only one meeting, but
occasionally a second meeting is
scheduled if further information is
needed. Your creditors are free to
appear and ask questions as well,
but creditors rarely attend. The
length of the meeting may vary. It
usually takes no more than an hour
for all scheduled cases on the
calendar to be completed.
Approximately two months after
the meeting date, the court issues
the
discharge order signifying the
conclusion of the case. The two
month waiting period is designed to
allow the trustee or a creditor
enough time to file an objection to
dischargeability, if appropriate.
These objections to discharge are
known as
adversary proceedings, and are
usually based on some alleged
fraudulent activity. The U.S.
Trustee's office, a branch of the
Justice Department, can also object
if they find that there has been a
substantial abuse of the bankruptcy
laws. The vast majority of cases,
however, will be concluded without
objections, and honest
debtors should have nothing to
fear.
The average case is completed in
three to four months. You then have
a fresh start, free from the
harassment of creditors. While your
creditors will not be paid after
discharge, some can treat the
discharged debt as a loss on their
income tax return.
-
- Chapter 13 is known as the wage
earner or repayment plan bankruptcy.
You can think of Chapter 13 as a
debt consolidation, where you group
all your debt together, and repay
creditors over three to five years
through an installment payment plan
formulated with the help of your
attorney. Chapter 13 can be filed
more often than Chapter 7, as long
as it is filed in "good faith".
- The main advantage of filing
under Chapter 13 is that your
property is not liquidated by the
trustee as in Chapter 7. You keep
all of your property as long as you
comply with the plan. But you are
not completely discharging your
debt. You must pay your creditors a
percentage on the dollar established
in accordance with your assets and
ability to pay.
Not everyone can file under
Chapter 13. For instance, there is a
debt ceiling, or limit to the amount
of debt you can have. Total
secured debt cannot exceed
$750,000, and unsecured debt cannot
exceed $250,000.
- The plan must also be feasible.
To be eligible, you must have
regular income such as wages,
pensions, self-employment or other
income sufficient to fund the plan.
The plan cannot run longer than five
years, and you must show the court
that you have enough disposable
income to pay your plan payments
within that time.
- Corporations cannot file under
Chapter 13, and must use the more
complex and expensive Chapter 11
bankruptcy if they wish to
reorganize. A business proprietor
that is not incorporated, however,
can file under Chapter 13 provided
the debt ceiling and other
provisions under Chapter 13 are met.
The Chapter 13
Trustee acts as a disbursing
agent. He collects your installment
payments, and distributes them to
creditors according to the plan.
All creditors may not be fully
paid. Unsecured creditors, in many
cases, may be paid only a small
percentage on the dollar, and upon
successful completion of the plan
the remainder of their debt is
discharged similar to Chapter 7.
To determine how much of your
creditors will be paid in Chapter
13, the
bankruptcy code provides two
guidelines which determine the
minimum amount unsecured creditors
must receive through the plan.
First, the disposable income test
requires that you pledge all of your
disposable income into the plan for
at least a three year period of
time. Disposable income is your
monthly income after your monthly
living expenses are paid. In other
words, you must pay unsecured
creditors as much as you can afford
for at least three years.
- Second, under the Chapter 7
test, you must pay unsecured
creditors the same amount through
your Chapter 13 plan as they would
get had your property been
liquidated under Chapter 7. Put
another way, your plan must pay
unsecured creditors an amount equal
to the value of your non-exempt
property.
Let's take an example. Assume we
have a husband and wife owning a
home with $30,000 worth of
equity.
Remember, only $20,000 worth of
equity can be exempted. That leaves
$10,000 worth of equity which,
theoretically, would have been
distributed to unsecured creditors
if a Chapter 7 petition were filed.
So, under the Chapter 7 test, this
means that unsecured creditors must
receive a total of $10,000 over the
duration of a Chapter 13 plan. Now,
let's assume there is $14,000 in
total
unsecured debt. By dividing
$14,000 into the minimum $10,000 to
be paid, you arrive at the
percentage to be paid to unsecured
creditors. 10,000 divided by 14,000
equals 0.71 or sevently-one cents on
the dollar.
What about priority and secured
debts? In every case, your plan must
pay priority creditors in full.
Also, secured creditors are entitled
to be paid an amount equal to the
value of their
collateral. The difference
between the value of the collateral
and the balance of the note is the
unsecured portion of the debt, and
is grouped together and paid the
same percentage as the other
unsecured debts such as credit
cards.
- You must also provide for a
trustee commission of approximately
5% of the total debt paid through
the plan.
- A simplified Chapter 13 Plan
would look like the chart below.
Let's assume this debtor owes $1,500
in back taxes, has $12,000 in credit
card and other unsecured debt, and
has a $6,000 loan secured with a car
having a value of $4,000. also,
let's assume this debtor has no
non-exempt equity and very little
disposable income, which makes this
debtor eligible to pay the minimum
five cents on the dollar to their
unsecured creditors.
Similar to Chapter 7, in Chapter
13 you must attend a Section 341
meeting of creditors, held
within 45 days of the filing. Unlike
Chapter 7, however, the meeting is
followed by a confirmation hearing.
At the confirmation hearing, the
plan is presented to a bankruptcy
judge for his review. If there are
no objections, and the plan meets
the requirements of Chapter 13, then
the judge will confirm the plan,
which makes it binding upon
creditors.
The first payment under the plan
is due approximately 30 days after
filing the petition. Thereafter, the
payments must be made regularly
under the terms of the plan.
Debtors can make payments to the
trustee themselves, or for
convenience, the payments can be
deducted directly from their wages.
Chapter 13 may have some
advantages aside from allowing you
to retain property which is
otherwise non-exempt in Chapter 7.
For instance, your co-signors are
protected if the co-signed debt is
paid in full through the plan.
Delinquent
mortgage payments, back property
taxes and missed car payments can be
paid through the plan to stop
foreclosure or repossession.
Chapter 13 is commonly used to
save a home from foreclosure. Under
the code, a plan which proposes to
pay all mortgage arrears through the
plan can decelerate a mortgage
default. You must, however, have
enough disposable income both to
fund the plan, and to start making
the current mortgage payments once
again directly to the lender as they
become due after the petition is
filed.
- You can pay student loans, child
support arrears or restitution
through the plan, and some debts
which are non-dischargeable in
Chapter 7 may be partially
dischargeable as an unsecured debt
in Chapter 13.
- When bankruptcy is appropriate,
it is usually not a question of
maintaining good credit - your
credit standing is probably already
damaged.
Judgments, delinquent payments,
and credit counseling services are
reported to the credit agencies for
long periods of time like
bankruptcy. Few lenders give credit
under those circumstances anyway,
and even if you satisfy a judgment
it still is a part of your credit
history.
The credit reporting
bureaus report a Chapter 7 filing
for a period of almost ten years.
The credit bureaus report a Chapter
13 filing for almost seven years as
long as you successfully complete
the plan. If the plan is dismissed,
then the Chapter 13 will be reported
for ten years as well.
A fresh start allows you to
re-establish your damaged credit.
Aside from being reflected on your
credit report, the bankruptcy laws
do not restrict you form obtaining
credit after the case is completed.
Keep in mind that whether you have
good or bad credit is always a
subjective decision in the eyes of a
prospective
creditor. Of course, you must be
prepared to explain why it is
necessary to file if a prospective
creditor should inquire. Maintaining
a good "track record" after filing
will minimize the adverse impact of
the financial troubles leading to
the bankruptcy. With the right
strategy, you can build good credit
once again. Our office provides a
booklet free of charge to each
client explaining how to
re-establish credit after
bankruptcy.
- There may be some
"pre-filing" strategies to
re-establish credit. A
non-filing spouse's credit
report is not affected by the
bankruptcy unless the spouse is
a co-signer on any of the debts.
If only one spouse files then
the other may be able to
maintain a good credit standing.
Also, if there is a bank card or
line of credit with a zero
balance before filing, you may
be able to use the card after
filing, provided it is not
revoked by the creditor.
This book should be used as a
general overview of the bankruptcy
process and not as specific legal
advice. This book is not a
replacement for the advice of a
competent bankruptcy attorney, a
fact this bankruptcy book itself
states in its introduction. The
Bankruptcy
Law Office of Walter Metzen
provides a
free Bankruptcy attorney
consultation, during which
you will be provided information
based on your specific circumstances
and current bankruptcy laws. Feel
free to contact us by telephone at
(800) 398-3328 or
via email if you have any
questions concerning the materials
or filing for bankruptcy.
Please click the link below to
review the book. You must have
Adobe Acrobat Reader installed
on your computer in order to review
the materials.
FREE
BANKRUPTCY BOOK
The Michigan
Bankruptcy Law Office of Walter Metzen,
offers each prospective client a
free
initial consultation to discuss your
financial concerns as well as the
possible need to file a petition for
relief under the United State Bankruptcy
Code. The purpose of the initial
consultation is to inform you about the
bankruptcy process in Michigan, whether
you should file a
Chapter 7 or a
Chapter 13
and how the United States Bankruptcy
Code is designed to protect most if not
all of your assets through
exemptions. In an effort to
make the free consultation more
productive, we ask that you bring
certain financial information to the
meeting, or better yet, complete and
send the online
Michigan Bankruptcy Consultation Form.
The list of creditors must be complete.
It must include ALL of your creditors
(including family members, taxes, car
loans, mortgages and leases), in one
column and the amount owed in the
adjacent column. The monthly budget
should contain a complete breakdown of
your income and expenses.
In addition to the above, be prepared to
provide our office with dollar values
for certain assets, including your home
(if you own), your vehicles, and any
other substantial assets, whether real
property or personal property. By
providing us the opportunity to review
your monthly budget and to gain some
understanding of the value of your
assets and how much you owe to your
creditors, we will be better able to
assess your situation and advise you
appropriately. You may schedule an
appointment by either completing the
Michigan Bankruptcy Consultation Form,
calling our offices directly at (313)
962-4656 or by requesting an
appointment
via email. Contact a Detroit Chapter 7 Bankruptcy Lawyer that, not only fully understands the bankruptcy process, but also can realistically advise you of your options. Feel free to schedule your free initial consultation. During this time, we can discuss your case and I can help you take charge of your financial situation. CLICK HERE for a Glossary of Bankruptcy Terms
We are a Debt Relief Agency helping people file for bankruptcy relief under the Bankruptcy Code. Let us help you decide if bankruptcy is right for you.
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