Guide to 2026 Bankruptcy Support

In Chapter 7, the trustee takes a look at your assets and compares their equity to the exemptions you claim. Equity is the value of the residential or commercial property minus what you owe on it. If your equity in a home, vehicle, or other property is fully covered by exemptions, the trustee typically leaves that asset alone.

That analysis frequently determines whether Chapter 7 is safe for somebody with built-up equity in Michigan property or a paid-off vehicle. In Chapter 13, exemptions still matter, but in a different method. Rather of offering non-exempt residential or commercial property, the law usually requires that unsecured lenders receive at least as much through your strategy as they would have received if you submitted Chapter 7 and your non-exempt assets were offered.

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A Michigan homeowner with equity above the homestead exemption may pick Chapter 13, make a greater month-to-month payment for a set number of years, and still keep the home. Because the choice between Michigan and federal exemptions can tilt the balance in between Chapter 7 and 13, this is not something to rate.

If Chapter 7 looks risky but the client's income can support a reasonable Chapter 13 payment, the recommendation might shift toward Chapter 13 to secure hard-earned residential or commercial property. How each chapter treats your specific debts typically matters more than any abstract benefits and drawbacks list. Unsecured debts, such as charge card, medical costs, payday loans, and many individual loans, generally receive comparable outcome in both chapters, but through different paths.

In Chapter 13, unsecured creditors typically get a share of what you pay into the strategy, which might be anywhere from a small percentage to the full amount, and the remaining balance can be discharged at the end if you finish your plan. Safe financial obligations include home that works as collateral, such as a home loan on a home or a lien on a car.

Comparing Chapter 7 Vs Chapter 7 in 2026

Keeping a protected property frequently involves remaining current on payments and, in some cases, signing a reaffirmation arrangement that keeps you personally accountable on that specific loan after personal bankruptcy. If you are far behind and can not catch up quickly, surrendering the home in Chapter 7 cleans out your personal liability for any deficiency balance after the lending institution sells it.

You can expand mortgage or vehicle loan defaults over a 3 to five-year strategy, which is called treating defaults, while also resuming your routine monthly payments. In some circumstances, Chapter 13 likewise enables a decrease of certain lorry loan balances to the automobile's existing worth, a concept known as cramdown, though comprehensive guidelines use.

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Priority and nondischargeable debts, such as recent earnings taxes, kid support, alimony, and a lot of trainee loans, stand in a different classification. These are typically not eliminated in Chapter 7, though the automatic stay can stop briefly some collection while the case is pending. In Chapter 13, these debts are typically paid completely through your strategy before unsecured financial institutions get anything.

At Hensel Law Office, PLLC, a comprehensive lender list is mapped to these categories so you see exactly which debts will be erased, which should be paid, and which chapter handles them better. Understanding how long each chapter lasts and what every day life appears like during the case can make the decision feel less abstract.

Shortly after filing, the automated stay usually stops garnishments, lawsuits, and most collection calls. You go to a conference of lenders, frequently called the 341 conference, where the trustee asks questions about your documents and financial resources. After that, you primarily wait for due dates to pass and for the court to provide a discharge, unless the trustee requires more details or is checking out non-exempt properties.

Deciding Between Chapter 7 and Chapter 13 for 2026

You submit the case, and the automatic stay enters into result, stopping garnishments, foreclosure sales, and a lot of collection activity. You propose a payment strategy, begin making regular monthly payments to the Chapter 13 trustee, and participate in a 341 conference and, oftentimes, a verification hearing where the judge considers whether to approve the strategy.

Numerous Michigan filers are surprised by how structured however workable the daily reality can be when the strategy is realistic. In Chapter 7, your main duties are to be truthful, supply files, attend your conference, and finish a required financial education course. In Chapter 13, the included responsibilities include adhering to a spending plan, making every plan payment on time, and reporting significant income modifications.

Once you comprehend how each chapter works, the next action is lining that up with your objectives. One core tradeoff is speed versus structure. Chapter 7 relocations faster and typically includes no long-lasting payment obligations, which attract Michigan tenants and house owners who are present on their home mortgages and have mostly unsecured debts.