Chapter 7 Background
A Chapter 7 bankruptcy filing is known as a “liquidation” bankruptcy, whereby in theory, the appointed trustee to the bankruptcy case liquidates the debtor’s assets to repay the debtor’s creditors. In practice, a true liquidation rarely occurs. The Bankruptcy Code allows the debtor to keep certain property that is “exempt,” pursuant to the Federal or State based (Michigan) property exemption rules.
Chapter 7 bankruptcy is available to both consumers and businesses. The major difference between filing under Chapter 7 and Chapter 13 is that under a Chapter 13 filing, the debtor’s debt is reorganized pursuant to a plan authorized by the Bankruptcy Court.
Filing for bankruptcy under Chapter 7 in Michigan can eliminate most of a debtor’s debts, generally speaking. The following is a common list of debts generally discharged (eliminated):
- Medical bills
- Credit card debt
- Unsecured debt
- Some tax debts
- Secured debt (foreclosure of collateralized asset will occur)
- Automobile debts
- Personal debts
Although wage garnishments are considered to be debts, the debt resulting in garnishments (depending upon the debt) will be eliminated, thus invalidating the garnishments.
You should contact your local Michigan bankruptcy attorney for a better idea of what debts can be discharged through bankruptcy.
Chapter 7 Bankruptcy Process
For the sake of simplicity, we have broken down the process in a few generalized steps.
Step 1: “Pre-filing” Credit Counseling Education
Assuming you have retained a bankruptcy lawyer and you’re eligible to file under Chapter 7, the first step in the process is to complete a “pre-filing” credit counseling education course. This course is fairly easy and straightforward and can usually be completed within hours. These courses can be taken in person, online, or over the phone. You will be issued a certificate upon completion which you should forward over to your attorney.
Step 2: File your Chapter 7 Petition Michigan
The next step is where your bankruptcy attorney will file your Chapter 7 petition to the local Bankruptcy Court. For Metro-Detroit, Michigan filers, the local Bankruptcy Court is the Michigan Eastern Federal District Court.
The bankruptcy attorney will use all the information collected from you (financial, tax, debt, asset information, etc.) and input values in “schedules” to be submitted to the Court. Once the Court receives this information, it will be forwarded to a trustee that’s assigned to your case.
Step 3: 341 Creditor Meeting
After filing your petition, you or your attorney will receive notice of the 341 creditor’s meeting. The purpose of the 341 Creditor’s Meeting is to ensure that the debtor made fair and honest claims in the Chapter 7 petition filing. The debtor is questioned about their assets, income, debts, and other related issues by the trustee.
This meeting is usually short and fairly informal. The debtor’s presence is required and you’re bankruptcy attorney will accompany you. Rarely will creditors appear at this meeting.
Step 4: Post-filing Credit Counseling Education
After your Chapter 7 bankruptcy petition has been filed, you will be required to complete a post-filing credit counseling education. Similar to the pre-filing course, this could be completed in person, online, over the phone. Upon completion, you will be issued a certificate which should be forwarded to your bankruptcy attorney.
Step 5: Bankruptcy Discharge
After all the steps have been successfully completed and the bankruptcy trustee hasn’t objected to anything, you will be issued a “discharge.” This signifies the end of your bankruptcy case.
If you are considering bankruptcy and would like to learn more about your options, we would be glad to meet with you and review your situation during a consultation at our Troy office.