It can be confusing to distinguish between the different types of bankruptcy and to know when it’s appropriate to file for it.

In this guide, we’ll cover Chapter 7 and Chapter 13—the two most common types of bankruptcy—and will explain what happens when you declare bankruptcy, how to do so, and questions you should ask yourself to determine whether bankruptcy is right for you.

Overview: What Is Bankruptcy?

Bankruptcy is a legal process for individuals or companies that are unable to pay their outstanding debts. You can go bankrupt in one of two main ways. The more common route is to voluntarily file for bankruptcy. The second way is for creditors to ask the court to order a bankruptcy.

If you decide to file for bankruptcy yourself, there are several ways to do so. You may want to consult a lawyer before proceeding so you can figure out the best fit for your circumstances.

Chapter 7 vs. Chapter 13: What’s the Difference?

Chapter 7 and Chapter 13 bankruptcies are two different approaches to resolving outstanding debts:

• Chapter 7: Liquidate your assets and pay off debt with cash
• Chapter 13: Work out a payment plan for unresolved debts

What Is Chapter 11?

There are other types of bankruptcy filings that are less common and more costly for small businesses, such as Chapter 11. This type of bankruptcy is for businesses with $2.5 million or more in debt, or for businesses owned by LLCs or partnerships. A Chapter 11 bankruptcy is similar to Chapter 13 but is usually only for businesses.

This type of bankruptcy:

• Involves a creditors’ committee appointed by an independent trustee
• Reorganizes the company according to a plan that creditors vote on
• Sets up a payment plan for the company to repay its debts

The Small Business Reorganization Act of 2019 made Chapter 11 less costly for small businesses, allowing them more flexibility to negotiate terms of the bankruptcy with creditors. But this is still much less common than Chapter 13. You may want to speak with a lawyer if you feel like a Chapter 11 bankruptcy is right for your company.

What Happens When You Declare Bankruptcy?

Filing a bankruptcy petition automatically stays your creditors’ claims against you. This means that your creditors have to stop trying to collect the money you owe them. They will not be able to:

• Call you to collect debts
• Repossess your car
• Foreclose on your home

Your case will be assigned to a bankruptcy trustee, who is a lawyer who will oversee your case. The trustee will send notices to your creditors and schedule a hearing.

From there, the procedure depends on whether you’ve filed for protection under Chapter 7 or Chapter 13 of the federal Bankruptcy Code.

What Happens When You File Chapter 7?

Chapter 7 is one of the most common types of bankruptcy. In a Chapter 7 bankruptcy, you will:

• Forfeit many of your assets to be sold for cash
• Pay your creditors with the money from your asset liquidation

There are certain assets—such as a limited amount of cash, clothing, household items, and a car—that you are allowed to keep, but these exemptions vary depending on the state you live in.

Once your assets are liquidated and creditors are paid, any remaining debts you owe are forgiven unless you’ve reaffirmed the debt. Debt reaffirmation is when you voluntarily waive protection through the bankruptcy discharge and agree to remain responsible for the debt. Reaffirmation is chosen to retain certain assets and avoid liquidation.

Not everyone can file a Chapter 7 bankruptcy. If your income is too high, you may be required to file a Chapter 13 bankruptcy instead.

What Happens When You File Chapter 13?

If you can’t file a Chapter 7 bankruptcy, or if you have some money to pay creditors and there are assets that you want to keep, a Chapter 13 bankruptcy may be an option for you. In a Chapter 13 bankruptcy, you will:

• Develop a plan for making payments to your creditors over a three-to-five-year period, depending on your income
• Make all of your payments on time to said creditors
• Complete a budget counseling course

After these milestones are complete, the remainder of your debt that is eligible for discharge will be erased.

Chapter 13 is a good option for someone with a steady income who has some money left over every month to make debt payments but who needs some breathing room and extra time to get caught up.

How Does Bankruptcy Affect Assets and Liabilities?

Depending on how you choose to declare bankruptcy, your assets and liabilities will be affected in different ways. In a Chapter 7 bankruptcy, many of your assets are up for liquidation to pay your creditors with the proceeds. In Chapter 13, you retain assets while working on a repayment plan for your outstanding debts.

See how bankruptcy affects assets and debts in the following debtee categories.

Small Business Owners

For small business owners with lots of personal debt, bankruptcy may help them continue to stay in business. It’s important to note that business debts aren’t alleviated with Chapter 7 or Chapter 13 unless you’re a sole proprietor and are personally responsible for them.

• Chapter 7: For sole proprietors, business and personal debts can be wiped out in a single bankruptcy case. You’re not obligated to meet income requirements if your business debt exceeds your personal debt.
• Chapter 13: Your business assets aren’t liquidated, but only your personal liability for business debts can be wiped out. The business remains responsible for its debts.

Some business assets can be exempt from Chapter 7 bankruptcy filings. For instance, if your business is service-based and doesn’t maintain equipment or significant inventory, you can likely continue to run your business after discharging business debts through bankruptcy.

Student Loan Holders

No form of bankruptcy can relieve student loan debt. Certain people, such as some government employees, are eligible for student loan forgiveness unrelated to bankruptcy filing.

If you need help managing your student loan debt, you should look to your creditor to help manage repayment options or look into debt consolidation.

Mortgage Holders

In a bankruptcy petition, your home and mortgage will be noted as assets to determine your ability to repay. Depending on the type of bankruptcy filing you pursue, your mortgage might be affected in different ways:

• Chapter 7: Your home can be liquidated to repay your debt unless you reaffirm your mortgage and assume responsibility for repayment post-bankruptcy.
• Chapter 13: Your home is not liquidated, and you’re responsible for paying your loan under the terms set by your repayment plan under the bankruptcy.

If you choose to reaffirm your mortgage in a Chapter 7 bankruptcy, you could be stuck with the liability for your loan after your bankruptcy proceedings. If you’re unable to repay, you won’t be able to declare Chapter 7 bankruptcy again for several years, and creditors may be able to sue you to collect on the loan.

How Do I Declare Bankruptcy?

To declare and file bankruptcy, you are required to complete a credit counseling class to learn about bankruptcy, alternative options, and managing your finances on your own.

After completing the course, you must submit a petition to the U.S. bankruptcy court in the federal judicial district where you live. This petition will list your:

• Assets, such as cars, homes, and bank accounts
• Monthly income and expenses
• Creditors and how much you owe them

You’ll also need to submit a copy of your most recent tax return with your petition. You can have an Firebaugh & Andrews prepare the petition for you.

Fling for Chapter 7

Chapter 7 is sometimes referred to as a “straight bankruptcy.” A Chapter 7 bankruptcy liquidates your non-exempt assets to pay off as much of your debt as possible. The cash from your assets is distributed to creditors like banks and credit card companies, and you typically receive a notice of discharge within four months.

To file Chapter 7, you must pass a bankruptcy means test. The only people exempted from this are disabled veterans filing for bankruptcy to discharge debt incurred while they were on active military duty or people with debt that comes from operating a business.

The record of your bankruptcy will stay on your credit report for 10 years. But for many people, Chapter 7 offers a fresh start.

Filing for Chapter 13

A Chapter 13 bankruptcy is also known as a reorganization bankruptcy. Chapter 13 enables people to pay off their debts over a period of three to five years. For individuals who have consistent, predictable annual income, Chapter 13 offers a grace period. Any debts remaining at the end of the grace period are discharged.

Once the bankruptcy is approved by the court, creditors must stop contacting the debtor. Bankrupt individuals may then continue working and paying off their debts over the coming years and still keep their property and possessions.

When To Declare Bankruptcy: 8 Questions To Ask Yourself

Most people take their financial obligations seriously and want to pay their debts in full, but knowing when to file bankruptcy and when to negotiate or use another strategy can help put you on the road to financial health.

Here are a list of questions that can help you assess your financial health and give you insight into whether bankruptcy may be right for you. You should also discuss these questions with an attorney.

1. Do I Only Make Minimum Payments on My Credit Cards?

Credit cards typically carry high interest rates on open balances. This means that your balance can quickly balloon if you’re only making minimum payments. If your balance was high to begin with, it could spiral out of control quickly.

2. Do I Get Calls From Bill Collectors?

Constant phone calls from collectors can be irritating and stressful reminders of your debt. Contact each of your creditors and see if they are willing to negotiate a lower balance or lower monthly payments.

3. Do I Use Credit Cards To Pay For Necessities?

Paying for basic necessities with a credit card causes those purchases to accrue interest. For this reason, you should aim to only pay for these items with a debit card.

4. Have I Considered, or Am I Considering, Debt Consolidation?

Debt stems from many sources. Consolidating your payments into one large loan can help you more easily keep track of outstanding debts with one monthly payment. This can also extend more time to your repayment as the new loan will come with new payment terms.

5. Can I Pay Down Debts by Selling Some Possessions?

It can be hard to confront downsizing from a home or getting rid of a car, but taking these difficult steps could allow you to pay off debts and avoid a bankruptcy filing.

6. Do I Owe More Than I Pay?

Your expenses should ideally be covered by your income with some buffer room for emergencies. If your monthly payments exceed your take-home pay, you’re a potential candidate for bankruptcy.

7. Am I Unsure How Much I Actually Owe?

Uncertainty about your total outstanding debts is cause for concern. Whether your balances have grown larger and you’re unaware of the total, or you’ve forgotten creditors that have sent your debt to collections, you should consider alternative repayment options if you can’t tabulate how much you owe.

8. Will a Bankruptcy Actually Resolve My Debts?

Bankruptcy does not resolve all debt indiscriminately. Some debts, such as student loans, cannot be discharged in bankruptcy. If you’re having trouble making payments toward debts that bankruptcy won’t cover, you should speak with your creditors to determine your options.

Call us for a free consultation 734-722-2999

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It’s true that bankruptcy can give you a fresh start – and in some situations, bankruptcy is the best option. But there are a lot of things to consider before you make the decision, so ask yourself these questions before you file

1. Have I exhausted all other options?

There are a lot of things you can do to avoid bankruptcy. Make sure you consider these steps:

• Contact your lenders to see if they can work out a payment plan. Most lenders would much rather do this than have to forgive your debt completely when you file for bankruptcy.
• Sell some of your assets. You may be surprised at how much cash you can raise to pay off your debts.
• Eliminate all unnecessary expenses. Take a good, hard look at your spending. Are you spending a lot of money eating out? Do you really need that large cable tv package? Put together a budget and stick with it. Anything you don’t absolutely need may have to be cut — at least temporarily — so you can put more money toward your debt.
• Sign up for credit counseling. Before you file for any kind of bankruptcy, you have to undergo counseling from a government-approved agency. It must include a two-hour financial management course. All of this has to be completed no more than 180 days before your bankruptcy discharge.^. It’s a worthwhile process; sometimes credit counseling services can help people avoid bankruptcy altogether.

2. Do I have enough debt to justify bankruptcy?

The fallout from bankruptcy can last for years. That’s why it should be your last resort. There’s no minimum amount of debt you must have to file — what justifies bankruptcy for one person might be manageable debt for someone else.

This is why it’s vital you work with a credit counselor to see what other options you have — they can help you decide if bankruptcy is the only option left.

3. Do I have debt that bankruptcy won’t eliminate?

Bankruptcy doesn’t wipe out all kinds of debt. Some examples that can’t be eliminated by filing for bankruptcy include:

• Secured debt like car loans or a mortgage. These may be exempt from your filing depending on the type of bankruptcy you file and the terms of your mortgage agreement.
• Student loans, whether from the government, private lenders of individual universities. (There are a few exceptions to this if you can prove to the court you’ve made an effort, but the payments will cause you “undue hardship.”)
• Alimony and child support or any other legal obligations to make payments due to a divorce or civil case.
• Property liens, including on your home mortgage.

What types of debt can be eliminated by bankruptcy? Big categories include credit card debt, medical bills, business debts, personal loans and utility debt.

4. Do I make too much money to file for bankruptcy?

Your income plays a factor in what type of bankruptcy you can file for. If you want to file for Chapter 7 bankruptcy, for example, your monthly income must be less than your state’s median income. This is referred to as “passing the means test.” Check the Department of Justice website for your state’s median income.

If your income is more than the median income, you may qualify for Chapter 13. The means test for bankruptcy can be complicated and varies by state, so you’ll want to consult with a bankruptcy lawyer.

5. Am I being hounded by bill collectors?

The stress of major debt — and the incessant requests of debt collectors — can be unmanageable for many people. Once you file for either Chapter 7 or Chapter 13 bankruptcy, bill collectors have to stop contacting you. This by itself can do a lot to reduce your stress.

6. Have I talked through my options with a professional?

Bankruptcy is complicated and a major decision that can have wide-reaching effects on your life. Be sure to talk through everything with Firebaugh & Andrews for a free Consultation 734-722-2999.

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Bankruptcy isn’t the end of the world. It may even be good for you.

Bankruptcy stops collection calls, lawsuits and wage garnishments. It erases debt. And despite what you’ve heard, bankruptcy may help your credit scores.

Credit bureaus and scoring experts often say bankruptcy is the single worst thing you can do to your scores. Foreclosures, repossessions, charge-offs, collections — nothing else can drive your scores down as fast and far as a bankruptcy.

But that’s not the whole story. Most people struggle so long with their debt that their credit is already battered by the time they file for bankruptcy. And once they do, their scores typically rise, not fall. If the debt is erased — which is known in bankruptcy court as a “discharge” — scores go up even more.

“Within a year, you’re way better off,” says Jaromir Nosal, assistant professor of economics at Boston College, who co-authored a study for the Federal Reserve Bank of New York about the effects of bankruptcy. “It’s a pretty rapid rate of recovery.”

How much and how soon credit scores can rise

Using data from Equifax credit bureau, researchers at the Federal Reserve Bank of Philadelphia found that filers’ Equifax credit scores plunged in the 18 months before filing bankruptcy and rose steadily afterward.

Among the findings:

• The average credit score for someone who filed Chapter 7, the most common type of bankruptcy, in 2010 was 538.2 on Equifax’s 280 to 850 range. (Scores in the low 600s and below are generally considered poor.) By the time the filers’ cases were discharged, usually within six months, their average score was 620.3.

• The other type of bankruptcy, Chapter 13, requires a three- to five-year repayment plan, which most people don’t complete. (Half of Chapter 13s filed between 2007 and 2013 were dismissed, and an additional 12 percent were converted to Chapter 7s or other types of bankruptcy, according to an American Bankruptcy Institute analysis of Justice Department figures.) Those who did and got a discharge, though, saw their scores rise from 535.2 to 610.8, the Philadelphia Fed researchers found.

A recent study by FICO, the company that created the leading credit score, found much smaller gains. Median credit scores for people who filed for bankruptcy between October 2009 and October 2010 rose from the 550s before they filed to the 560s afterward, says Ethan Dornhelm, senior director for FICO’s scores and analytics group. (Most FICO scores are on a scale of 300 to 850.)

After two years, 28% of bankruptcy filers had scores of 620 and above. After four years, 48% had scores of 620 or above, and only 1% scored 700 or above.

But the FICO study didn’t distinguish between Chapter 7 and Chapter 13, or between people who got a discharge and those who didn’t. Those with undischarged debt could be skewing the results. In other words, people with completed bankruptcies could have seen bigger gains than what’s reflected in the median figures, Dornhelm says.

Saving your credit score is only one reason

Credit scores aren’t the only factor to consider, of course. Some of the others:

An end to collection hell: Nosal’s study found that once people fell seriously behind on their debt — with at least one account 120 days overdue, for example — their financial troubles tended to get worse. Balances in collections and the percentage of people with court judgments grew.

By contrast, people who file for bankruptcy benefit from its “automatic stay,” which halts almost all collection efforts, including lawsuits and wage garnishment. If the underlying debt is erased, the lawsuits and garnishment end.

Freedom from certain debts: Chapter 7 bankruptcy wipes out many kinds of debt, including:

• Credit card debt.
• Medical bills.
• Personal loans.
• Civil judgments (except for fraud).
• Past-due rent.
• Past-due utility bills.
• Business debts.
• Some older tax debts.

Some debts, including child support and recent tax debt, can’t be erased in bankruptcy. Student loan debt can be, but it’s very rare. But if your most troublesome debt can’t be discharged, erasing other debts could give you the room you need to repay what remains.

Better access to credit: It can be difficult to get credit right after a bankruptcy. But Nosal’s study shows people who have completed bankruptcy are more likely to be granted new credit lines within 18 months than are people who fell 120 days or more overdue at the same time but didn’t file.

Your credit limits after bankruptcy are likely to be low, however, and your access to credit — like your credit scores — won’t recover completely until a Chapter 7 bankruptcy drops off your credit reports after 10 years.

That’s a long time in the penalty box. But let’s dispense with the idea that people facing bankruptcy are choosing between paying their bills and not paying their bills.

When to stop digging a hole you can’t escape

Most of us feel we have a moral obligation to pay what we owe — if we can. But typically that ship has sailed by the time people realize they need to consider bankruptcy. They can continue trying to chip away at debts they may never be able to repay, prolonging the damage to their credit scores and diverting money they could use to support themselves in retirement. Or they can recognize an impossible situation, deal with it and move on.

If you can pay your bills, obviously you should. If you’re struggling, check out your options for debt relief. But bankruptcy may be the best option if your consumer debt — the kinds listed above that can be erased — equals more than half your income, or if it would take you five or more years to pay off that debt even with extreme austerity measures.

Here’s what you need to know:

You need to call Firebaugh & Andrews for your free consultation 734-722-2999 It’s easy to make a mistake in the complicated paperwork, and an error could cause your case to be dismissed. If that happens, you end up with no relief — but still have credit scores tanked by the bankruptcy filing.

Raise cash the smart way: Trim unnecessary expenses, if you still have any. Sell stuff, if you’ve got anything to sell. If you’re still paying your credit cards and other consumer debt, you could stop and redirect the money to pay for an attorney. Another option is to borrow from friends and family. Don’t open new credit accounts to borrow the money, though, since that could be considered fraud. Working a second job can be problematic if you boost your income above the median for your area, since that complicates your filing. Discuss your options with an attorney; many offer a free or low-cost initial consultation.

Don’t wait too long: There’s a misconception that people file bankruptcy at the drop of a hat or when they still have other options. The reality for most is quite different. Some drain assets, such as their retirement accounts, that could have been protected from creditors in bankruptcy. People throw good money after bad until they have no money left to seek relief.

That’s why we advise debtors in over their heads to investigate bankruptcy first.

“The worst thing that can happen is not being able to go bankrupt and not being able to pay,” Nosal says. “That’s when people really suffer.”

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Proving Fraud Took Place

In order to convict a person of bankruptcy fraud, it must be proven that the individual intended to commit the crime. There must be an actual intent to deceive, which requires evidence that there was planning involved. If a person makes a mistake or forgets to include an asset when preparing the bankruptcy documents, this would not constitute bankruptcy fraud because intent is a necessary element of the crime.

Concealment of Assets

The most common type of bankruptcy fraud is concealment of assets whereby a debtor hides assets from the bankruptcy trustee so that the trustee cannot liquidate those assets to pay creditors. Concealment of assets involves transferring assets to a friend or family member, or, failing to disclose certain assets or income in the bankruptcy documents. Concealment of assets accounts for over 70% of all bankruptcy fraud.

False Statements

Another method of committing bankruptcy fraud is by making false statements, either in person during a bankruptcy proceeding, or in sworn documents. When a person files for bankruptcy protection, they are required to fill out a petition and complete numerous supporting documents, including a statement of their financial affairs and a schedule of income and assets. If the debtor intentionally makes a false statement in the documents, he or she may be prosecuted.

Nevertheless, some bankruptcy courts have held that the misrepresentation must be material, meaning that the false statement must be capable of influencing the outcome of the bankruptcy proceeding.

This issue arose in a similar case where a debtor failed to disclose two bank accounts that were closed the previous year. One account had a balance of $51 and the other account had a balance of $87. Although the debtor claimed at trial that he simply forgot about the old accounts, a jury convicted him of bankruptcy fraud for making a false declaration. However, the presiding judge overturned the conviction stating that the failure to disclose must be material, and because the debtor’s liabilities exceeded his assets by over $1 million, the two small bank accounts would not have had a significant impact on the filing.

Multiple Filings

A person may also commit bankruptcy fraud by filing multiple bankruptcy claims in two or more states, using the same name and information, a false name and information, or a combination of both. In this case, a debtor generally lists the same assets on each fraudulent claim, but intentionally fails to include every asset. This confuses the system and slows down the court’s ability to process the bankruptcy filings. The purpose is to fraudulently protect assets from total liquidation by giving the debtor time to conceal his or her assets.

Bankruptcy Petition Mills

A bankruptcy petition mill is a bankruptcy fraud scheme that is committed by a third party. In this scenario, the perpetrator claims to be a consultant who can help a tenant avoid eviction. The “consultant” collects all of the tenant’s financial information and, unknown to the tenant, files a bankruptcy petition. While the case is pending, the perpetrator charges the tenant fees, drains the tenant’s bank accounts, and destroys the tenant’s credit. This type of bankruptcy fraud is reportedly on the rise in the United States and often targets non-English speaking victims

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1. DO NOT transfer assets out of your name.
This raises a huge red flag. A bankruptcy trustee can undo a transfer of property that previously belonged to you.

2. DO NOT pay off a relative or “favorite” creditor.
If you pay off a relative or creditor within one year prior to the filing of a case, the trustee may make that person give back the money and distribute it to other creditors.

3. DO NOT continue to use your credit cards.
Even though you’ll likely eliminate a large portion of your debt, charges for luxury goods and services of more than $500 within 90 days of filing are presumed non-dischargeable.

4. DO NOT take a cash advance.
If you take out cash advances totaling more than $925 within the 70 days prior to filing, the law presumes that the debt is non-dischargeable. You’ll have to prove to the court that you did not intend to defraud the creditor when you took out the cash advances. Even if the time period and total amount requirements are not met, a creditor can still sue you if it can prove you took the advance with the intent to defraud the creditor.

5. DO NOT fail to appear at court.
A lawsuit in state court continues until your bankruptcy has been filed.  Filing your bankruptcy occurs only after you have met with us and provided all the necessary information.

6. DO NOT hide information from your attorney.                                                                               Our office can only provide advice based on information we are aware of. Failure to disclose assets can lead to the loss of those assets, fines, or imprisonment.

7. DO NOT mortgage your home to pay debt.
If you take out a second mortgage on your home, you may be converting debt which would have been discharged in bankruptcy into debt you still have to pay in order to keep your home.

8. DO NOT liquidate or take a loan from your retirement account

It is important to consult Firebaugh & Andrews  before borrowing any money from your 401(k) plan. If you previously borrowed money from your 401(k), repayments on 401(k) loans are not viewed as debts in bankruptcy and are not discharged in a Chapter 7.

9. DO NOT forget to start rebuilding your immediately after discharge from bankruptcy.
Bankruptcy is the first step to getting a fresh financial start.

10. DO NOT leave out any creditors.
It is important that all of your creditors get notice of the bankruptcy filing.

DO…

1. DO continue to make payments on vehicles which you are intending to keep.
Creditors secured by a car or truck can usually repossess the vehicle without notice to you anytime you are in default.

2. DO ask your bankruptcy attorney questions.
Filing bankruptcy is overwhelming and difficult to understand for the average person who doesn’t deal with bankruptcies everyday. We are happy to explain the unfamiliar laws and rules of bankruptcy.

3. DO tell your attorney about liens you may have on your home or unpaid judgments.
It’s possible that we can help avoid the liens or unpaid judgments.

4. DO make your house payment.
If you plan on keeping your house through the bankruptcy process (Yes, you can keep your house).

5. DO file your taxes.
The court will require at least two years of tax returns to be submitted.

6. DO close or keep minimal amount in your checking and saving accounts at any banks where you also have a credit card or line of credit.
If you stop paying on your credit card or line of credit, the bank may go into your account and use funds to pay your credit card or line of credit.

7. DO adjust the amount withheld from your pay for taxes.
It’s helpful to get as close as possible to getting no refund or owning. A tax refund is an asset in Chapter 7, and your tax withholding can affect plan payments in a Chapter 13.

8. DO inform us of a garnishment.
If you get us the name, phone number, and fax number of your payroll or bank department, we’ll fax to them proof that the bankruptcy was filed and ask that any garnishment STOP as soon as possible. It is also possible that we we may be able to retrieve all of the garnished funds.

9. DO continue to pay child support.
Child support will not be discharged in the bankruptcy process so it’s important to continue to make your child support payments.

10. DO come up with a budget.
A sustainable budget is vital to the fresh start you will achieve by eliminating your debt via bankruptcy.

10.5 DO talk to an attorney after reading these bankruptcy dos and don’ts.
Contact our office at 734-722-2999 or info@MichiganBankruptcyFacts.com to schedule a FREE CONSULTATION 

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2. New federal regulations passed in 2005 make it harder to qualify for complete debt elimination. The Bankruptcy Code was changed in 2005 to make it more difficult for consumers to wipe out debt completely if there are resources available to pay these obligations. Many consumers who would have qualified for a Chapter 7 discharge before these changes must now use Chapter 13 instead, which involves repayment of some of your debts. This is determined using the Means Test.

3. A Chapter 13 bankruptcy includes a repayment plan that must be filed with the bankruptcy court. The court will determine exactly what income and expenses you have, and then calculate the reasonable expenses and monthly repayment amount for your case. This plan must be submitted to the court and confirmed.

4. Representing yourself in bankruptcy court can be a big mistake. The laws regarding bankruptcy can be very confusing, and many common errors could cost you a chance at a new financial start. An experienced attorney can help you determine the right exemptions, represent you at hearings and meetings with creditors, and get the best results possible for you.

5. Bankruptcy court is a court which exclusively deals with bankruptcy cases. These courts are located around the United States, and they only handle bankruptcy cases and matters related to this legal area.

6. The bankruptcy court will appoint a trustee in your case. This trustee will be responsible for overseeing your specific case and ensuring that all of the documentation is filed. The trustee is not in favor of either the consumer or creditors, but is an officer of the court instead.

7. Choosing the right attorney to represent you in bankruptcy court is important and can affect the outcome of your case. You want a lawyer who will aggressively defend you and work hard to overcome any objections that may be presented by your creditors or the trustee. Experience is also important, so you want an attorney who is very knowledgeable in bankruptcy law.

8. The penalties for lying or hiding assets in a case can be severe. The bankruptcy court judge has the authority to dismiss your case, order fines and penalties deemed appropriate, or even have perjury or other criminal charges filed against you. It is essential that you are completely honest in all your dealings with the court to avoid any sanctions or penalties.

9. The exemptions you claim in bankruptcy court will affect whether or not your property can be seized and sold to pay creditors. The laws of each state are different. An experienced attorney can help you determine whether to use the federal or state exemptions, or whether a combination of these two are better in your specific case.

10. A discharge is the order issued by the bankruptcy court when your case is completely finished and closed out. Usually any debts that have not been repaid are eliminated in the process unless you have reaffirmed your obligation.

Call Firebaugh & Andrews for your free evaluation, with over 50 years combined experience they can make sure you make the right decision.

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Whether you can keep jewelry, watches, and wedding rings in Michigan depends on what type of bankruptcy you file (Chapter 7 or Chapter 13), whether you use the Michigan or federal bankruptcy exemptions, how much the jewelry is worth, and whether you need to protect other assets as well.

Keeping Jewelry in Chapter 13 Bankruptcy in Michigan

In Chapter 13 bankruptcy, often called a reorganization bankruptcy, you enter into a repayment plan for three to five years. Your creditors get paid through the plan – some in full and some in part. Although a Chapter 13 plan requires a long commitment, the advantage is that you get to keep your property, including jewelry.

If you have very expensive jewelry however, that will probably affect how much you will be required to repay unsecured creditors.

Keeping Jewelry in Chapter 7 Bankruptcy in Michigan

Chapter 7 bankruptcy works differently. In Chapter 7, you must give up certain items of property. The bankruptcy trustee sells this property and uses the proceeds to repay (at least in part) your unsecured creditors.

Michigan Bankruptcy Exemptions

Not all of your property is up for grabs, however. Michigan (and all of the other states) has enacted laws that protect certain types of property. These laws are called exemptions. Some property is exempt no matter what the value, and other property is exempt only up to a dollar amount. The idea behind exemptions is that someone filing for bankruptcy should not be stripped of basic things needed for living – like shelter, clothing, furniture, a car, and the like. (Learn more about how bankruptcy exemptions work.)

In Michigan, you can choose to use either the Michigan bankruptcy exemptions or another set of exemptions called the federal bankruptcy exemptions (17 other states and the District of Columbia also allow you to use the federal exemptions). Whichever set you choose, you must stick with it — you cannot mix and match from each set. For this reason, it’s important to review all of the exemptions in each system. You wouldn’t want to pick one system in order to keep jewelry, only to lose your house. (Review the Michigan bankruptcy exemptions and the federal bankruptcy exemptions.)

Keeping Jewelry, Watches, and Wedding Rings Under the Federal Bankruptcy Exemptions

There are several provisions of the federal bankruptcy exemption system that you can use to keep your jewelry. If you are married and filing a joint bankruptcy, you can double these amounts.

• Jewelry exemption. You can keep up to $1,550 of your jewelry.
• Wildcard exemption. You can keep up to $1,225 of any type of property, including your jewelry. If you don’t want to use the wildcard to protect other property, you can put the full $1,225 towards your jewelry.
• Unused homestead exemption.  If you don’t use the homestead exemption, or only use part of it, you can use up to $11,500 of the remaining amount for anything you want, including your jewelry. The federal homestead exemption is $22,975.

Keeping Jewelry, Watches, and Wedding Rings Under the Michigan Bankruptcy Exemptions

In Michigan, you can keep jewelry using the below exemptions. If you are married and filing a joint bankruptcy, you can double these amounts.

• Jewelry exemption. Michigan allows you to keep up to $600 per item of the following: appliances, books, furniture, household goods, and jewelry. The only caveat is that the combined total of these items cannot exceed $3,775. This means that if you want to keep an antique sofa worth $3,700, you’ll only have $75 left for jewelry.
• Wearing apparel. Michigan allows you to exempt wearing apparel. A few courts across the country have included watches in the definition of wearing apparel. If you want to use this exemption to protect a watch, check with a local bankruptcy attorney to see what your local court might do.

How to Value Jewelry in Bankruptcy

The value of your jewelry for exemption purposes is the amount you would have to pay on the date you file for bankruptcy to replace each item with a used item of similar age and in similar condition. There are various methods of determining the replacement value, but for expensive jewelry you will almost always need an appraisal. (Learn more about how to value personal property in bankruptcy.)

Other Ways to Keep Jewelry in Michigan Bankruptcy

If you want to keep nonexempt items of jewelry, the trustee may accept other items of exempt property in exchange for the jewelry. The trustee would then sell these items instead of your jewelry to repay your creditors.

Similarly, if you have some cash, you may be able to reimburse the bankruptcy trustee for the value of the jewelry you want to keep. Again, the trustee would use this money (instead of selling the jewelry) to repay unsecured creditors.

Firebaugh & Andrews can help call them today to set up a free consultation 734-722-2999

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Bankruptcy and Divorce Costs

Bankruptcy filing fees are the same for joint and individual filings.  So filing a joint bankruptcy with your spouse before a divorce can save you a lot on court fees.  Also, if you decide to hire a bankruptcy attorney, your attorney fees will likely be much lower for a joint bankruptcy than if each of you filed separately. However, you should let your bankruptcy attorney know about your upcoming divorce as there may be a conflict of interest for him or her to represent you both.

Filing for bankruptcy before a divorce will simplify the issues regarding debt and property division and lower your divorce costs as a result.

Chapter 7 vs. Chapter 13 Bankruptcy

A Chapter 7 is a liquidation bankruptcy designed to get rid of your unsecured debts such as credit card debt and medical bills.  In a Chapter 7, you usually receive a discharge after only a few months.  So it can be completed quickly before a divorce.

In contrast, a Chapter 13 bankruptcy lasts three to five years because you have to pay back some or all of your debts through a repayment plan.  So if you were looking to file a Chapter 13, it may be a better idea to file individually after the divorce because it takes a long time to complete.

Property Division

Wiping out your debts jointly through a bankruptcy will simplify the property division process in a divorce.  However, before filing a joint bankruptcy you must make sure that your state allows you enough exemptions to protect all property you own between you and your spouse.  Certain states allow you to double the exemption amounts if you file jointly.  So if you own a lot of property, it may be a better idea to file a joint bankruptcy if you can double your exemptions. 

If you can’t double your exemptions and you have more property than you can exempt in a joint bankruptcy, it may be more advantageous to file individually after the property has been divided in the divorce.  Also, keep in mind that if you file bankruptcy during an ongoing divorce the automatic stay will put a hold on the property division process until the bankruptcy is completed.

Allocation of Debts

Litigating which debts should be assigned to each spouse in a divorce can be a costly and time consuming process.  Further, ordering one spouse to pay a certain debt in a divorce decree does not change the other spouse’s obligations toward that creditor.

For example, let’s say your ex-husband was ordered in the divorce to pay a joint credit card you had together.  If he doesn’t pay it or files bankruptcy then you are still on the hook for the debt and the creditor can come after you to collect it.  If you end up paying the debt, you have a right to be reimbursed by your ex-husband because he violated the divorce decree. This holds true even if he filed bankruptcy because he can discharge his obligation to pay the creditor but he cannot discharge his obligations to you under the divorce decree.

However, trying to collect from your ex will usually mean spending more money to pursue him in court.  As a result, it may be in both spouses’ best interest to file bankruptcy and wipe out their combined debts before a divorce.

Income Qualification for Chapter 7

If you intend to file a Chapter 7, the decision to file before or after a divorce can come down to income if you maintain a single household.  If you wish to file jointly, you must include your combined income in the bankruptcy.  If your joint income is too high, then you may not be able to qualify for a Chapter 7.

This can happen even if each spouse’s income individually is low enough to qualify on his or her own.  This is because Chapter 7 income limits are based on household size and the limit for a household of two is not twice that of a single person household (it’s usually only slightly higher).  In that case, it may be necessary to wait until each spouse has a separate household after the divorce to file bankruptcy.

Call Firebaugh & Andrews at 734-722-2999 for your free consultation.

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1. DO NOT transfer assets out of your name.
This raises a huge red flag. A bankruptcy trustee can undo a transfer of property that previously belonged to you.

2. DO NOT pay off a relative or “favorite” creditor.
If you pay off a relative or creditor within one year prior to the filing of a case, the trustee may make that person give back the money and distribute it to other creditors. (Link to Paying Debts After Bankruptcy)

3. DO NOT continue to use your credit cards.
Even though you’ll likely eliminate a large portion of your debt, charges for luxury goods and services of more than $500 within 90 days of filing are presumed non-dischargeable.

4. DO NOT take a cash advance.
If you take out cash advances totaling more than $925 within the 70 days prior to filing, the law presumes that the debt is non-dischargeable. You’ll have to prove to the court that you did not intend to defraud the creditor when you took out the cash advances. Even if the time period and total amount requirements are not met, a creditor can still sue you if it can prove you took the advance with the intent to defraud the creditor.

5. DO NOT fail to appear at court.
A court case continues until your bankruptcy has been filed, which occurs only after you have met with us and provided all the necessary information.

6. DO NOT hide information from your attorney.Our office can only provide advice based on information we are aware of. Failure to disclose assets can lead to the loss of those assets, fines, or imprisonment.

7. DO NOT mortgage your home to pay debt.
If you take out a second mortgage on your home, you may be converting debt which would have been discharged in bankruptcy into debt you still have to pay in order to keep your home.

8. DO NOT liquidate or take a loan your retirement account

It is important to consult an experienced bankruptcy attorney (link) before borrowing any money from your 401(k) plan. If you previously borrowed money from your 401(k), repayments on 401(k) loans are not viewed as debts in bankruptcy and are not discharged in a Chapter 7.

9. DO NOT forget to start rebuilding your immediately after discharge from bankruptcy.
Bankruptcy is the first step to getting a fresh financial start. See How to Rebuild your Credit (Link to how to rebuild your credit)

10. DO NOT leave out any creditors.
It is important that all of your creditors get notice of the bankruptcy filing.

DO…

1. DO continue to make payments on vehicles which you are intending to keep.
Creditors secured by a car or truck can usually repossess the vehicle without notice to you anytime you are in default.

2. DO ask your bankruptcy attorney questions.
Filing bankruptcy is overwhelming and difficult to understand for the average person who doesn’t deal with bankruptcies everyday. We are happy to explain the unfamiliar laws and rules of bankruptcy.

3. DO tell your attorney about liens you may have on your home or unpaid judgments.
It’s possible that we can help avoid the liens or unpaid judgments.

4. DO make your house payment.
If you plan on keeping your house through the bankruptcy process (Yes, you can keep your house (link)).

5. DO file your taxes.
The court will require at least two years of tax returns to be submitted.

6. DO close or keep minimal amount in your checking and saving accounts at any banks where you also have a credit card or line of credit.
If you stop paying on your credit card or line of credit, the bank may go into your account and use funds to pay your credit card or line of credit.

7. DO adjust the amount withheld from you pay for taxes.
It’s helpful to get as close as possible to getting no refund or owning. A tax refund is an asset in Chapter 7, and your tax withholding can affect plan payments in a Chapter 13.

8. DO remind us of a garnishment.
If you get us the name, phone number, and fax number of your payroll or bank department, we’ll fax to them proof that the bankruptcy was filed and ask that any garnishment STOP as soon as possible. It is also possible that we we may be able to retrieve all of the garnished funds. (link to garnishment page)

9. DO continue to pay child support.
Child support will not be discharged in the bankruptcy process so it’s important to continue to make your child support payments.

10. DO come up with a budget.
A sustainable budget is vital to the fresh start you will achieve by eliminating your debt via bankruptcy.

Talk to Firebaugh & Andrews after reading these bankruptcy dos and don’ts. for a free consultation 734-722-2999

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