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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If you’re planning to file for bankruptcy, it might make sense to do so as soon as possible. For instance, filing for bankruptcy can stop a foreclosure, repossession, or wage garnishment; help you keep more property and; let you discharge debt. Below are the seven reasons that people benefit from filing for bankruptcy sooner rather than later.

Keep in mind that it’s common to have competing issues—reasons to file soon and reasons to wait. You’ll find list of situations that might cause you to consider delaying your bankruptcy filing in Top 10 Reasons to Delay Filing for Bankruptcy.

1. The Bank Is Foreclosing on Your Home

If you’re in foreclosure, you can stop it by filing for bankruptcy. Once filed, the automatic stay prohibits lenders and creditors from continuing collection actions against you, including foreclosure proceedings. Keep in mind that Chapter 7 doesn’t have a mechanism to help you stay in your home, and the lender can file a motion to lift the stay, so the relief will be temporary. Only in Chapter 13 can you catch up on mortgage payments and keep your house.

One of Chapter 7’s benefits is that if you file before the foreclosure ends, the bankruptcy will wipe out the entire mortgage debt. You won’t get stuck owing the difference between the auction price and your balance (called a deficiency). Because even if your lender forgives the deficiency after foreclosure, you’ll likely owe income taxes on the forgiven amount. Filing for bankruptcy before the foreclosure can help avoid these problems. Find out more in Should I File for Bankruptcy Before or After Foreclosure?

2. Your Lender Wants to Repossess Your Car

Bankruptcy’s automatic stay also puts an immediate stop to any efforts by your lender to repossess your car. In Chapter 13, you can catch up by including back payments in your plan. In both chapters, you might be able to get your car back if the lender repossessed it recently. Talk to a local bankruptcy lawyer. If you’d like to learn more, read Can the Lender Repossess My Car During Chapter 7 Bankruptcy and Car Repossession and Bankruptcy.

3. You’ve Moved to a State With Less Favorable Exemptions

You don’t have to give up all of your property in bankruptcy. Each state has a list of bankruptcy exemptions that you can use to keep the property you’ll need to work and live. If you’ve moved to a different state, and the new exemption laws won’t protect as much as those in the old state, you’ll want to file for bankruptcy soon. The available state exemptions will depend on your “domicile.” In most cases, you’ll use your old state’s exemptions when you’ve moved recently.

4. Your Landlord Is Evicting You

A bankruptcy filing will put a stop to most evictions, but not for long. And if the landlord already obtained a judgment for possession (an eviction order from the court), bankruptcy won’t help at all. For details, see Will Bankruptcy Prevent an Eviction?

5. You Want to Stop a Lawsuit

If someone is suing you for medical debt, credit card debt, car accident damages, or a breach of contract, filing for bankruptcy will stop the suit. It makes no sense to pay to defend these lawsuits if you can have the debt discharged. But it is important to note that a bankruptcy will not stop all lawsuits.

6. You Started a Higher Paying Job

Qualifying for Chapter 7 bankruptcy means passing the means test. Your income is essential—the means test looks at your average earnings over the six months before you file. The higher your income, the less likely you’ll pass the means test. If you recently started a higher-paying job, your means test average income increases every month that you wait to file. Filing for bankruptcy sooner rather than later may help you pass the means test. However, keep in mind that’s not all that the trustee and court will consider. If your actual income is higher than what you need to cover monthly expenses, the trustee will recommend converting your case to Chapter 13.

7. You Expect to Receive Property Soon

You can usually keep property in which you obtain an ownership interest after filing for bankruptcy. However, exceptions exist. For instance, you’ll need to report inheritances and lottery winnings up to 180 days after you file. So if you expect to receive property soon, it might be a good idea to file before you become entitled to it—but speak with a local bankruptcy lawyer first.

Call 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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So it is better that before hiring you do some research and make sure that you find an attorney who could really show you way attorney who could really show you way out from the bankruptcy mess!

Facts about selecting the Attorneys:

As most of the attorneys are usually overworked, they aren’t able to give ear to full details of your case. You may feel that your attorney isn’t pursuing your case the way you want him to pursue and ultimately you will feel irritated.

Many of the attorneys aren’t qualified enough to lead your bankruptcy case. So such attorneys don’t fulfill your expectations. Certificates are important indicators to judge whether the attorney is qualified enough or not.

Asking from friends won’t take you to any good lawyer, unless your friend has gone through filing for bankruptcy but it may be useful to take advice from legal professionals.

You can even go to a bankruptcy court and observe the attorneys there. Maybe during your observation, you will find some attorneys who are good enough for you.
Once you find the attorney, you can satisfy yourself completely by asking him or her the right questions. A short conversation can tell you a lot about the attorney you have chosen. You can ask them about their expertise and experience. After conversation, you can evaluate the attorney to see if that attorney is really right for you or not!

1. Once you select the attorney, you must discuss with him what type of bankruptcy should you file? There are eight different types for filing bankruptcy. You attorney can best point out which type suits you for filing bankruptcy.

2) You need to ask him how you can file for bankruptcy. You have to file for your bankruptcy in the state where you are living. The Attorney can prepare the necessary paperwork that would be needed to present to the courts.

3) You must know the fees that are involved in the filing for bankruptcy. The total fees will comprise of the attorney’s fees plus the court fees that you need to submit to file for your bankruptcy.

4)  You must know where you should file your bankruptcy claim. You need to consult your attorney on how to get there and what documentation is required.

5) you must know the after effects of filing for bankruptcy. As soon as you file for bankruptcy, creditors will receive notification from the courts and will not be allowed to contact debtor for payments. A hearing in court will be set. The case will proceed depending on type of bankruptcy filed.

Call Firebaugh and Andrews today for a free evaluation. 734-722-2999 we can help sort things out for you or your business.

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You will only have to wait 4 years if your previous bankruptcy was a Chapter 13, and you plan to file for Chapter 13 a second time. If you initially filed for a Chapter 13 and are now seeking bankruptcy protection under Chapter 7, the waiting period is six years. A Chapter 13 can be filed after two years if your first bankruptcy was a Chapter 7. The same first time procedures for filing apply to your second time as well, including:

Credit counseling class before your petition is filed
A bankruptcy hearing
Completing a financial management class after your hearing and before your case is officially
If you are experiencing financial problems and were previously granted a bankruptcy, a Michigan bankruptcy lawyer can make sure that you are fully informed of the laws pertaining to a second filing and how they apply to your particular situation.

The Bankruptcy Process in Michigan
The bankruptcy process can be complex, especially if you are filing for a second time. Not only will you need to meet the requirements for a second filing, your creditors may be more difficult to work with. You should also expect the court to conduct a thorough review of your finances before a second bankruptcy is approved.

Attentive Service As You File the Second Time Around
We wll work with you one-on-one, and make sure you are in full compliance with filing statutes before your petition is submitted. we provide our clients a very high level of service and can discuss how to proceed with a seond filing during a free initial consultation.

Call us for a free consultation 734-722-2999

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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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The following is a brief description of the relief afforded to individuals and businesses through Chapter 11, for more information please call Firebaugh & Andrews for a few evaluation at 734-722-2999

Chapter 11 Overview

Filing a Chapter 11 petition grants a debtor what is known as an automatic stay from the enforcement actions of creditors. This precludes creditors from continuing collection efforts, from bringing a lawsuit, or from filing liens against property or foreclosing on property.

In Chapter 11, a debtor generally remains in control of their estate. A trustee may be appointed for cause (i.e., fraud, dishonesty, incompetence or gross mismanagement) or if such appointment is in the best interest of creditors; however, this relief is relatively rare. A Chapter 11 debtor-in-possession generally has the same rights as a trustee would have if appointed, thus any reference to rights or authority of a debtor would apply to a trustee, if appointed, as well.

Exclusive Time Periods

A Chapter 11 debtor is granted the exclusive right to file a plan of reorganization for a period of 120 days and to solicit a plan of reorganization for a period of 180 days. A debtor can seek an extension of these “exclusive periods” for cause. Otherwise, once an exclusive period lapses, any creditor or party in interest can file a plan of reorganization for the debtor.

Similarly, if a creditor or party in interest can show that a debtor is mismanaging the estate, not negotiating in good faith with creditors or using the exclusive period as leverage in negotiation with creditors, they can seek to terminate exclusivity to allow non-debtors to file a competing plan. Competing plans are rare; however, the threat of a competing plan is often sufficient to keep negotiations between a debtor and its creditors active.

Committee of Unsecured Creditors

Another tool available to balance creditors’ powers of negotiation is an official committee of unsecured creditors. The purpose is similar to that of a class action lawsuit – while each individual creditor may not have a large enough claim to justify retaining counsel, aggregate creditors’ claims can be quite large and their collective voice could benefit from legal representation. The creditors’ committee is made up of three or more volunteering unsecured creditors selected by the United States Trustee. The creditors’ committee can retain legal counsel and financial advisors to assist in the case, with the cost of such professionals carried by the debtor.

A creditors’ committee is not formed in every case and is usually limited to large, complex or highly contested Chapter 11 cases.

The Reorganization Plan

A Chapter 11 plan of reorganization provides debtors with important tools for rearranging financial affairs. For example, a plan may allow a debtor to reject certain contracts or leases with a cap on damages. This is helpful where a debtor has signed an expensive, long-term contract that is no longer beneficial.

A debtor may also refinance existing loans including increasing the time in which it must be repaid (i.e., stretching a two-year loan to five years), decreasing the interest rate if interest rates have declined since the loan was entered into, or changing/removing other arduous terms. Through Chapter 11, as with other bankruptcy chapters, a debtor can also sell an asset free and clear of all liens either through a plan or through what is a called a 363 sale. The ability to sell an asset free and clear of liens can garner a greater sale price as purchasers are assured that the property is unencumbered and the purchaser is subject to less liability.

Regardless of who files a plan of reorganization, certain creditors are entitled to vote to approve or disapprove a plan. Only those creditors that are determined to be partially impaired (e.g., reduced payments or payments over time) are entitled to vote on a plan. Creditors that are unimpaired are deemed to accept the plan and creditors that are fully impaired (i.e., will not recover) are deemed to reject the plan. However, even if they are not allowed to vote on a plan, a creditor still has the right to object to its treatment under the plan. In order for a plan to be accepted, two-thirds of creditors in number and fifty percent of creditors in dollars must vote in favor of the plan.

A Chapter 11 debtor can cramdown a plan over the negative vote of creditors in certain circumstances. Even if creditors vote to accept a plan, the bankruptcy court will review the plan and ensure that it meets statutory requirements before the plan can be confirmed. If a debtor is unable to get a plan of reorganization confirmed, the case may be converted to a Chapter 7 filing or dismissed. After a plan is confirmed, the debtor’s bankruptcy is essentially over. However, the bankruptcy court generally retains jurisdiction over the case at least until the last plan payment is made.

Chapter 11 for Individuals

Given the complexity and cost of Chapter 11, it is most often used by businesses. On the other hand, Chapter 11 may be the only option available to an individual debtor with income greater than that allowed by the Chapter 7 means test, and secured debt in excess of that allowed by Chapter 13. This is often the case where an individual owns large amounts of real property, but does not have sufficient liquidity to pay his or her debts as they come due.

The major benefit of Chapter 11 for individuals is the ability to keep assets beyond just the statutory exemptions available under Chapter 7 and Chapter 13. Given that Chapter 11 individual cases are relatively infrequent and the language of the chapter is better applied to corporations, the law applied to Chapter 11 consumer cases has been largely unsettled. If you are considering an individual Chapter 11 you would be best served to give us a call for a free consultation at 734-722-2999 Firebaugh & Andrews

The post What is Michigan chapter 11, and who may qualify? first appeared on Michigan Bankruptcy Facts 734-722-2999.

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Prevent Foreclosure, Repossessions And Garnishments In Michigan

When you file bankruptcy, you are protected by the “automatic stay.” The automatic stay requires creditors to put an immediate stop to all debt collection efforts. The following are examples of creditor actions that can be stopped when you file bankruptcy:

• Home foreclosure: Filing bankruptcy will stop the foreclosure and give you time to decide whether to keep the home or give it up.
• Auto repossession: Filing bankruptcy will stop a repossession. As long as the car has not been sold, you can get it back.
• Harassing phone calls: Once you file bankruptcy, creditors cannot call you or your employer.
• Lawsuit judgments: Filing bankruptcy puts an immediate stop to collection of lawsuit judgments.
• Wage garnishments: Filing bankruptcy will stop the garnishment. If you act soon enough, it may allow you to get garnished wages back.
• Bank account garnishments: Filing bankruptcy will stop the garnishment. If you act soon enough, it may allow you to get your money back.

Call Firebaugh and Andrews we handle emergency bankruptcy filings in Michigan, call us today for your free consultation. 734-722-2999

The post When to use Emergency Bankruptcy Filings. first appeared on Michigan Bankruptcy Facts 734-722-2999.

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