Chapter 13 Bankruptcy



In Michigan, Chapter 13 bankruptcy provides a viable option for those unable to qualify for Michigan Chapter 7, or for those who wish to keep their assets while still being able to get a better handle on debt. Of the various types of bankruptcy, Michigan Chapter 13 bankruptcy is known as the “wage earners” chapter and is classified as a reorganization plan under the Bankruptcy Code.
There are several important provisions to be aware of for Michigan Chapter 13 bankruptcy, but the main point is that this form of bankruptcy does not simply liquidate debt like Chapter 7. Instead, at least some of the total debt owed will be repaid during a 3 to 5 year time period, in exchange for keeping your property and other assets. You can use Chapter 13 Bankruptcy to prevent a house foreclosure, make up missed house or car payments; remove a second mortgage, pay back taxes and child support, and keep valuable non-exempt property, and more.

Once you successfully complete your plan payments, all your remaining dischargeable debt will be released at the end of the Michigan Chapter 13 bankruptcy plan (typically 3 to 5 years). The amount, if any, to be repaid is determined by the debtor’s disposable income. In addition, the total amount paid to creditors in a Chapter 13 bankruptcy plan must be at least as much as creditors would have received if the debtor filed a Michigan Chapter 7 bankruptcy case. To file for Michigan Chapter 13 bankruptcy you must have a regular source of income and have some disposable income to apply towards your Michigan Chapter 13 payment.

In Michigan, Chapter 13 bankruptcies have become a common form of consumer bankruptcy protection since changes were made to the Bankruptcy Code in 2005 making it impossible for many individuals to file Chapter 7 due to more stringent eligibility requirements. While Chapter 7 has an income cap, requiring you to pass what is known as a means test or make less than the median income in Michigan, Chapter 13 does not have this limitation. Further, Chapter 13 does not require debtors to turn over all non-exempt assets for sale as Chapter 7 bankruptcy does.
For more information on Michigan Chapter 13 bankruptcy, call the experienced bankruptcy attorneys at Sterling Bankruptcy Center for your free consultation or complete our on-line free evaluation form and an experienced bankruptcy attorney will contact you.

See Also:
•Chapter 7 Bankruptcy
•Chapter 7 vs. Chapter 13
•Frequently Asked Question for Michigan Bankruptcy
•Free Evaluation

An Overview Of Chapter 13 Bankruptcy

While many people have a steady income they cannot pay all their bills, despite their best efforts. In many cases they find themselves behind on their mortgage and receiving harassing calls from credit card companies.   In such cases, filing for Chapter 13 bankruptcy protection may provide a solution to what seems like an insurmountable problem. Once considered a last resort, Chapter 13 bankruptcy has evolved into an accepted method of resolving serious financial problems. If you are facing serious financial challenges such as foreclosure, repossession, or garnishment, contact one of Sterling Bankruptcy Center's bankruptcy professionals to determine whether Chapter 13 is right for you.


When is “Reorganization” through Chapter 13  Bankruptcy the Right Choice?

Chapter 13 has certain advantages over Chapter 7 in consumer bankruptcies. The biggest advantage for many people is that Chapter 13 allows individuals an opportunity to keep their homes and avoid foreclosure. Chapter 13 also allows individuals to modify some secured debts and extend them over the life of the plan and pay a fraction of unsecured debt with no interest. In addition, Chapter 13 allows the debtor to discharge more types of debts than Chapter 7 does. Under Chapter 13, the debtor is known as a debtor in possession and  most debtors are permitted to retain most or all of his/her assets.  There are however limitations on how much the debtor can owe.  An individual is eligible for Chapter 13 relief as long as the individual's unsecured debts are less than $336,900 and secured debts are less than $1,020,650.  These amounts are periodically adjusted to reflect changes in the consumer price index. 
An individual cannot file for Chapter 13 protection or for bankruptcy under any other chapter if he/she has filed for bankruptcy and the case was dismissed during the preceding 180 days due to the debtor's failure to appear at the 341 hearing, appear at court, comply with orders of the court, or the case was voluntarily dismissed after creditors sought relief from the bankruptcy court to recover property upon which there are liens.

Who can file for Chapter 13 bankruptcy protection?


 Any individual, even if you are self-employed or operating an unincorporated business, is eligible for chapter 13 relief as long as the individual's unsecured debts are less than $336,900 and secured debts are less than $1,010,650. These amounts are adjusted periodically to reflect changes in the consumer price index. A corporation or partnership may not be a chapter 13 debtor.  An individual cannot file under chapter 13 or any other chapter if, during the preceding 180 days, a prior bankruptcy petition was dismissed due to the debtor's willful failure to appear before the court or comply with orders of the court or was voluntarily dismissed after creditors sought relief from the bankruptcy court to recover property upon which they hold liens.
                                                 How does Chapter 13 Work?
A Chapter 13 proceeding is initiated by filing a petition with the court. As in Chapter 7 cases, the filing of the petition automatically stays (stops) creditors from trying to collect on most of debts. In addition, in a Chapter 13 case, co-debtors who are not a party to the bankruptcy case may be protected via the automatic stay.   A creditor generally may not seek to collect "consumer debts" from with the petition, the debtor must also file schedules reflecting all the debtors assets, liabilities, current income and expenditures, any individual who is liable along with the debtor. Along a schedule of executory contracts and unexpired leases and a statement of financial affairs. Prior to filing, the debtor must take a credit counseling course and obtain a certificate of completion that must be filed with the court.  The debtor must also provide pay advices for the 60 days prior to filing, a statement of monthly net income and any anticipated increase in income or expenses after filing; and a record of any interest in federal or state qualified education or tuition accounts.  After filing the petition, a trustee is appointed to manage the case.  Within 30 to 45 days after the debtor files the petition, the trustee holds a meeting of creditors. The debtor must attend this meeting and answer questions, under oath, regarding financial issues and the terms of the proposed plan. 
Along with the petition and schedules, the debtor must file a plan that proposes the details of how he or she intends to pay off creditors in the next three to five years.  The plan must provide for fixed payments made directly to the Trustee via an income withholding order or ACH order.  If the plan is approved, the trustee will distribute funds to the creditors according to the plan's terms. Within 30 days of filing, the debtor must start making payments under the plan to the trustee, even if the court has not yet approved the plan. 
There are three primary types of claims: (1) priority claims, which include most taxes and the costs of the bankruptcy proceedings; (2) secured claims, in which the creditor has the right to recover property (collateral) if the debtor does not pay; and (3) unsecured claims, for which the creditor generally has no special rights to collect against any property the debtor owns. The plan must pay priority claims in full, unless a priority creditor agrees otherwise. Unsecured claims do not need to be paid in full as long as the plan provides that the debtor will pay all "disposable income" over an "applicable commitment period" and as long as unsecured creditors would receive at least as much under the plan as they would if the debtor's assets were being liquidated

The court must hold a confirmation hearing within 45 days of the meeting of creditors, at which time he or she will decide whether the plan is feasible and meets the Bankruptcy Code's standards for confirmation.  Creditors may object to the plan. If a creditor or the Trustee objects to the proposed plan, the court will hold a hearing and rule on the objections.  If the court approves the plan, however, the creditors can take no action outside the plan's scope to collect their debts.
Once the debtor completes all payments under the plan, the debtor is entitled to a discharge, which releases him or her from all debts provided for or disallowed under the plan. To obtain the discharge, the debtor must also (1) certify that all domestic support obligations have been satisfied (if applicable); (2) complete an approved financial management course; and (3) have not received a discharge within two years in a prior Chapter 13 case or within four years in a prior case under Chapters 7, 11 or 12.





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