Consumer Bankruptcy Case Profiles

Common Case Profiles for Those Considering Filing for Bankruptcy in Michigan

Immediate Relief – Chapter 7 Bankruptcy for individuals who have no liquid assets and are under the median income level.

Chapter 7 relief is available for individuals who have too much debt, no ability to pay, and are in need immediate relief. Chapter 7 will stop a wage garnishment, relieve homeowners of the pressure of keeping a house they cannot afford, and wipe out credit cards and medical bills.

Prevent Foreclosure or Repossession – Chapter 13 Bankruptcy for individuals who want to keep their home and/or vehicle.

Most mortgage delinquencies begin the same way: instead of paying on the 1st of the month, you start paying within the 10-day grace period. Eventually, a month of high expenses leads to a late payment, followed by another late payment, and you can never quite catch up. One missed payment becomes two, two turns into three, and by the fourth month you receive a letter from a law firm indicating the mortgage company’s intent to commence foreclosure proceedings. Chapter 13 can help.

A Chapter 13 bankruptcy, when filed before a foreclosure sale, allows the consumer to resume making regular monthly payments, and provides up to five years to catch up on the delinquency. Depending on several factors, including income and the value of your assets, you may be able to eliminate credit cards and other unsecured debts in their entirety, focusing solely on catching up your mortgage or car loan. By reorganizing under the protection of the Bankruptcy Code, individuals can effectively use Chapter 13 to get their necessary payments back on track.

Get More Value out of Your Secured Assets –  Use Chapter 13 Bankruptcy to strip a junior lien or cramdown a secured loan.

Chapter 13 allows individuals to remove a junior lien from their primary residence if their home is worth less than their first mortgage. Yes, you read that correctly: if your home’s first mortgage is underwater, Chapter 13 is the only option that will allow you to remove a second mortgage, turning it into an unsecured debt. The unsecured debt is consolidated in the Chapter 13 plan, and you will pay just cents on the dollar to your unsecured creditors. Reorganization plans typically last three to five years.  At the end of your plan of reorganization, the remaining amount of your unsecured debt is discharged. You will emerge from Chapter 13 debt-free and closer to realizing equity in your home.

Chapter 13 also allows consumers the ability to “cramdown” loans on other pieces of real estate to the value of the property at the time a bankruptcy was filed. This option is available to consumers for real property other than the primary residence. If a consumer owns a rental property that is worth far less than the amount of the outstanding mortgage, a Chapter 13 will allow the consumer to “cramdown” the loan balance to the value of the property. That crammed down loan is then paid through the bankruptcy plan of reorganization, over a period of three to five years. At the end of the bankruptcy, the consumer will own the investment property free and clear. Car loans which were financed at least two-and-a-half years prior to the filing of a Chapter 13 bankruptcy can also be crammed down to the value of the vehicle, as of the time that the case is filed. These benefits can be combined in any number of ways to maximize the relief available under Chapter 13.

Chapter 13 and Divorce Related Debts – Use Chapter 13 Bankruptcy to protect your rights under a domestic support order or to discharge a property settlement to a former spouse.

Individuals going through a divorce often have joint debts with their former spouse. They may also have new liabilities created by virtue of a judgment of divorce. Chapter 13 allows individuals to discharge certain liabilities determined to be part of a “Property Settlement.” Chapter 13 can also be used by ex-spouse creditors to enforce the payment of Domestic Support Obligations if one party should file for bankruptcy.

Chapter 13 allows married couples to file a joint case treating all debts at one time, even if they get divorced during their bankruptcy case. Married couples have the ability to file a joint bankruptcy, which means one attorney, one retainer, and one filing fee. Although a typical Chapter 13 plan lasts from three to five years, the court understands that circumstances change, especially for couples enduring financial stress. Chapter 13 allows couples to enter bankruptcy together, manage, reorganize, and discharge their debts together, and still allows for them to divorce during the process. Filing together will save an extraordinary amount of time and money for the couple who is already struggling to make ends meet. Why pay two bankruptcy attorneys when you are already paying two divorce attorneys?  Couples can file one bankruptcy case, enter into mediation, and amicably separate while resolving their debts at the same time. Chapter 13 affords families the flexibility to make changes to their budget and their lifestyle, while still working toward the goal of emerging from bankruptcy debt-free.