Long-Term Impacts of Filing Bankruptcy

In Chapter 7, the trustee takes a look at your properties and compares their equity to the exemptions you declare. 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 home is totally covered by exemptions, the trustee normally leaves that property alone.

That analysis often identifies whether Chapter 7 is safe for someone with built-up equity in Michigan real estate or a paid-off vehicle. In Chapter 13, exemptions still matter, but in a different way. Instead of offering non-exempt home, the law generally requires that unsecured financial institutions get at least as much through your strategy as they would have gotten if you filed Chapter 7 and your non-exempt properties were sold.

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For example, a Michigan property owner with equity above the homestead exemption might pick Chapter 13, make a greater monthly payment for a set variety of years, and still keep the home. Since the choice between Michigan and federal exemptions can tilt the balance in between Chapter 7 and 13, this is not something to guess at.

If Chapter 7 looks dangerous but the client's earnings can support a reasonable Chapter 13 payment, the suggestion might move toward Chapter 13 to protect hard-earned property. How each chapter treats your specific financial obligations frequently matters more than any abstract advantages and disadvantages list. Unsecured financial obligations, such as credit cards, medical bills, payday advance, and many individual loans, typically receive comparable outcome in both chapters, however through different paths.

In Chapter 13, unsecured financial institutions frequently receive a share of what you pay into the strategy, which may be anywhere from a small portion to the full amount, and the staying balance can be released at the end if you complete your strategy. Safe debts involve property that acts as collateral, such as a home loan on a home or a lien on an automobile.

Important Filing Requirements for 2026 Bankruptcy

Keeping a secured asset frequently includes staying current on payments and, in many cases, signing a reaffirmation agreement that keeps you personally accountable on that particular loan after insolvency. If you are far behind and can not catch up rapidly, giving up the home in Chapter 7 wipes out your individual liability for any shortage balance after the lending institution offers it.

You can spread out home loan or automobile loan defaults over a 3 to five-year plan, which is called curing arrears, while also resuming your routine monthly payments. In some situations, Chapter 13 also enables a decrease of specific lorry loan balances to the vehicle's present worth, an idea referred to as cramdown, though detailed rules use.

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Top priority and nondischargeable financial obligations, such as recent income taxes, child assistance, spousal support, and many student loans, stand in a different category. These are normally not eliminated in Chapter 7, though the automatic stay can pause some collection while the case is pending. In Chapter 13, these debts are typically paid in complete through your strategy before unsecured financial institutions get anything.

At Hensel Law Workplace, PLLC, a comprehensive creditor list is mapped to these categories so you see exactly which debts will be removed, which need to be paid, and which chapter handles them better. Understanding how long each chapter lasts and what every day life looks like throughout the case can make the decision feel less abstract.

Soon after filing, the automatic stay typically stops garnishments, lawsuits, and the majority of collection calls. You participate in a meeting of lenders, typically called the 341 meeting, where the trustee asks concerns about your documents and finances. After that, you generally wait for due dates to pass and for the court to release a discharge, unless the trustee needs more details or is exploring non-exempt possessions.

Should You Use Chapter 7 in 2026?

You submit the case, and the automated stay enters into impact, stopping garnishments, foreclosure sales, and a lot of collection activity. You propose a repayment plan, begin making monthly payments to the Chapter 13 trustee, and participate in a 341 conference and, in most cases, a verification hearing where the judge considers whether to authorize the strategy.

Numerous Michigan filers are surprised by how structured however manageable the everyday truth can be when the plan is sensible. In Chapter 7, your main responsibilities are to be sincere, supply files, attend your conference, and complete a needed financial education course. In Chapter 13, the added obligations include adhering to a budget, making every strategy payment on time, and reporting significant earnings modifications.

Once you understand how each chapter works, the next step is lining that up with your objectives. One core tradeoff is speed versus structure. Chapter 7 moves quicker and usually includes no long-term payment responsibilities, which appeals to Michigan occupants and property owners who are existing on their home mortgages and have primarily unsecured financial obligations.