How Michigan Chapter 13 Bankruptcy Works
You must have resided in Michigan for 730 days before filing for bankruptcy to use Michigan bankruptcy exemptions.
Battling debt can be frustrating and stressful, especially with the recent COVID outbreak. Metro Detroit predicts bankruptcies will increase and Detroit News estimates there will be a flood of bankruptcies ahead. For many, debt problems begin with a financial crisis beyond their control, such as job loss, illness or accidental injury. Even missing a few weeks of work can create devastating financial problems.
Chapter 13 bankruptcy in Michigan, whether you are in East Lansing or Detroit, can be an affordable way to solve your debt problems. In this article, we discuss Chapter 13 cases in Michigan. If you are looking for a Chapter 7 bankruptcy, see our article on Chapter 7 bankruptcy in Michigan. We also discuss how Chapter 13 can help you get out of debt.
Understanding Bankruptcy in Michigan
- Chapter 7 vs Chapter 13 Bankruptcy in Michigan
- Calculating Chapter 13 Plan Payments in Michigan
- Testing facilities in Michigan
- Michigan Credit Counseling and Debtor Education Course
- Michigan Bankruptcy Exemptions
- Michigan Courts and Bankruptcy Trustees
- Alternatives to Filing for Bankruptcy in Michigan
Chapter 7 vs Chapter 13 Bankruptcy in Michigan
There are two types of common consumer bankruptcies: Chapter 7 bankruptcy or Chapter 13 bankruptcy.
You can file for Chapter 7 bankruptcy in Michigan if you don’t have enough money to pay your living expenses AND your debts. During the Chapter 7 process, you will complete a bankruptcy form that measures your income. If you cannot meet the income criteria for a Chapter 7 bankruptcy case, you likely do not qualify for a bankruptcy discharge (debt cancellation) under Chapter 7.
On the other hand, Chapter 13 bankruptcy cases in Michigan are for people who have a stable income and can afford to pay some of their debts. Although they may not be able to repay all of their unsecured debts, they can pay off a percentage of the debts through a Chapter 13 plan. The Chapter 13 process is to come up with a plan that restructures the debts into an affordable monthly repayment plan.
Calculating Chapter 13 Plan Payments in Michigan
Most Chapter 13 plans are calculated based on a 60-month plan. However, some people may qualify for a 36 month plan. Additionally, several factors are used to calculate a Chapter 13 plan. For example, your income, expenses, assets, debts, and recent financial transactions can impact how much you must pay in a Michigan Chapter 13 case.
In most cases, a Chapter 13 plan payment includes payments for:
- Mortgage arrears (overdue mortgage payments)
- car loan payments
- Tax debts
- Reimbursement of alimony and child support
- Chapter 13 administrative costs
- Unsecured debt (i.e. credit card debt, medical debt, personal loans, judgments, student loans, old utility bills, etc.)
Some debts are not dischargeable in the event of bankruptcy. For example, you must pay most tax debts, restitution, government debts, alimony, and child support in full through a Chapter 13 plan. You also don’t have to pay them in full under most Chapter 13 plans. This means you’ll continue to owe your student loans after you finish your bankruptcy case.
Many debtors can reduce their auto loan payments through their Chapter 13 plan, if they meet the legal requirements. They can also wipe out second mortgages if their home is worth less than what they owe on their first mortgage.
Testing facilities in Michigan
As part of bankruptcy reform in 2005, Congress developed a Michigan Bankruptcy Means Test that calculates the average monthly income (AMI) of a debtor (the person filing for bankruptcy).
Calculation of average monthly income (AMI)
Your AMI is based on your income for the six months prior to filing for Michigan Chapter 13 bankruptcy. All income, except income under the Social Security Act, is included in the means test. After adding up all your income for the last 6 months, you calculate your AMI by dividing all the income for the last six months by six. You then obtain your Annual Monthly Income by multiplying your AMI by 12.
The means test compares your median income to the average median income of families in Michigan. If your median income is above Michigan’s median income, you probably don’t qualify for Chapter 7 unless your debts are primarily business debt. Also, you must file a 60-month Chapter 13 plan if your median income is above Michigan’s median income.
Median income figures are updated every few months to reflect current income levels. The latest set of figures was updated on May 15, 2022.
Calculating Disposable Income for a Chapter 13 Plan
A common question is, “How much does bankruptcy cost in Michigan?” » The total cost of filing for bankruptcy may depend on the calculation of disposable income.
The AMI is also used to calculate disposable income, which is a factor in how much you must pay your unsecured creditors in a Chapter 13 plan.
Disposable income is the amount of money you have left over each month after you subtract eligible monthly living expenses. Please note that some living expenses are restricted while others are not permitted.
You can find more information about eligible living expenses used in the means test from the United States Trustee’s Office. They have a list of Census Bureau and IRS data used to calculate the resource test on their website. Also be sure to use the most recent data due to frequent and periodic updates. Finally, you can pick up a Chapter 13 bankruptcy calculator to help you estimate your Chapter 13 disposable income.
Michigan Credit Counseling and Debtor Education Course for Chapter 13
You must complete two bankruptcy courses as part of the bankruptcy process. You will need to take a credit counseling course before filing for bankruptcy. Additionally, you will need to take a debtors education course after filing your bankruptcy petition.
Both classes are available online for a nominal fee. Here is a list of approved companies for credit counseling courses in Michigan. And here is a list of approved Michigan debtor education providers. Please note that you must use a company approved by the United States Trustee to teach bankruptcy courses in Michigan.
Michigan Bankruptcy Exemptions
Bankruptcy waivers protect assets in the event of bankruptcy. Exemptions protect a certain amount of equity in the property from being used to pay off your creditors. The federal bankruptcy exemptions are found in 11 USC §562. You can also view a list of federal bankruptcy exemptions published by the NCLC.
Michigan debtors can choose between federal bankruptcy exemptions or Michigan bankruptcy exemptions. You must choose federal or state exemptions – you cannot mix them. Bankruptcy exemptions are reviewed every three years in Michigan. The most recent revisions to the Michigan bankruptcy exemption are as of January 1, 2020. You can view the current Michigan bankruptcy exemption amounts. here.
To take full advantage of the protections afforded by bankruptcy exemptions, you should compare the exemption amounts for federal and state exemptions to decide which list gives you the best Chapter 13 asset protection. If you have assets with non-exempt equity, you do not lose Chapter 13 assets, but you will pay a higher amount each month for your Chapter 13 plan.
Residency Requirements for Michigan Bankruptcy Exemptions
You must have resided in Michigan for 730 days before filing for bankruptcy to use Michigan bankruptcy exemptions. Otherwise, you must follow the state bankruptcy rules of the state in which you resided for the greater part of the 180 days prior to the 730 day period.
If you have not lived in Michigan in the past two years or have substantial equity in your property, you can consult with a bankruptcy attorney to ensure that you are choosing the correct bankruptcy exemptions for protect property in Chapter 13. Equity is calculated by subtracting valid liens and allowable exemptions from the fair market value of the property.
Michigan Courts and Bankruptcy Trustees
Michigan has two bankruptcy districts. The Eastern District of Michigan has three divisions. Bankruptcy courts are located in Bay City, Detroit and Flint. The Eastern District of Michigan has specific local rules and judge practices that you should review before filing Chapter 13 if you do not have a bankruptcy attorney.
The Western District of Michigan has five divisions. These bankruptcy courts are found in Grand Rapids, Kalamazoo, Marquette, Traverse City and Lansing. The Western District of Michigan also has local rules that you should review if you are filing bankruptcy without an attorney.
Chapter 13 trustees are assigned to cases to administer the case. The United States Office of the Trustee oversees Chapter 13 trustees. You can view a list of Michigan Chapter 13 trustees on the UST website.
Should I file for bankruptcy in Michigan?
Whether you should declare bankruptcy is ultimately your decision, and you understand your finances and your goals better than anyone. You can take a bankruptcy quiz to help you answer these questions or you can also get a free bankruptcy consultation from a local attorney.
Alternatives, you can compare debt settlement to bankruptcy, which is a common alternative to a Chapter 13 bankruptcy in Michigan. Either way, the goal is to help you be as informed as possible in your decision.