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How Chapter 13 Bankruptcy Works in Michigan

— July 1, 2022

You must have resided in Michigan for 730 days before filing your bankruptcy case to use Michigan bankruptcy exemptions.

Struggling with debt can be frustrating and stressful, especially with the recent COVID outbreak. Metro Detroit predicts bankruptcies will rise and Detroit News estimates that there will be a flood of bankruptcies coming. For many, debt problems begin with a financial crisis outside their control, such as job loss, illness, or accidental injury. Even missing just a few weeks of work can create devastating financial problems.

Chapter 13 bankruptcy in Michigan whether you are in East Lansing or Detroit may be an affordable way to solve your debt problems. In this article, we discuss Chapter 13 cases in Michigan. If you are looking for a Chapter 7 bankruptcy, check out our article covering Chapter 7 Bankruptcy in Michigan. We also discuss how Chapter 13 can help you get out of debt.

Understanding Bankruptcy In Michigan

  • Chapter 7 vs. Chapter 13 Bankruptcy in Michigan
  • Calculating Chapter 13 Plan Payments in Michigan
  • Means Testing in Michigan
  • Michigan Credit Counseling and Debtor Education Courses
  • Michigan Bankruptcy Exemptions
  • Bankruptcy Courts and Trustees for Michigan
  • Alternatives to Filing Bankruptcy in Michigan

Chapter 7 vs. Chapter 13 Bankruptcy in Michigan

There are two types of common consumer bankruptcies: Chapter 7 or Chapter 13 bankruptcy.

You can file for Chapter 7 bankruptcy in Michigan if you do not have enough money to pay your living expenses AND your debts. During the Chapter 7 process, you will complete a bankruptcy form that measures your income. If you cannot meet the income qualifications for a Chapter 7 bankruptcy case, you probably do not qualify for a bankruptcy discharge (debt forgiveness) under Chapter 7.

On the other hand, Chapter 13 bankruptcy cases in Michigan are for individuals who have a steady income and can afford to pay a portion of their debts. While they may not be able to repay all their unsecured debts, they can pay a percentage of the debts through a Chapter 13 plan. The Chapter 13 process involves proposing a plan that restructures debts into an affordable, monthly repayment plan.

Calculating Chapter 13 Plan Payments in Michigan

Most Chapter 13 plans are calculated based on a 60-month plan. However, some individuals may qualify for a 36-month plan. In addition, several factors are used to calculate a Chapter 13 plan. For example, your income, expenses, assets, debts, and recent financial transactions can impact the amount you must pay in a Chapter 13 case in Michigan. 

In most cases, a Chapter 13 plan payment includes payments for:

  • Mortgage arrearage (past due mortgage payments)
  • Car loan payments
  • Tax debts
  • Back alimony and child support payments
  • Chapter 13 administrative costs
  • Unsecured debts (i.e. credit card debts, medical debts, personal loans, judgments, student loans, old utility bills, etc.)

Some debts are not dischargeable in a bankruptcy case. For example, you must pay in full most tax debts, restitution, government debts, alimony, and child support payments through a Chapter 13 plan. Note that while student loans are not dischargeable, you also don’t need to pay them in full through most Chapter 13 plans. That means you will continue to owe your student loans after completing your bankruptcy case.

Many debtors can reduce their car loan payments through their Chapter 13 plan, if they meet the legal qualifications. They may also erase second mortgages if their home is worth less than they owe on their first mortgage.

Means Testing in Michigan

As part of bankruptcy reform in 2005, Congress developed a Michigan bankruptcy means test that calculates a debtor’s (the person who files the bankruptcy case) average monthly income (AMI). 

Calculating Average Monthly Income (AMI)

Your AMI is based on your income for the six months before filing a Michigan Chapter 13 bankruptcy case. All income except Social Security Act income is included in the Means Test. After summing all your income for the last 6 months, you calculate your AMI by dividing all income for the past six months by six. You then obtain your Annual Monthly income by multiplying your AMI by 12.

The Means Test compares your median income to the average median income for families in Michigan. If your median income is above the Michigan median income, you probably do not qualify for Chapter 7, unless your debts are mainly business debts. Also, you must file a 60-month Chapter 13 plan if your median income is above the Michigan median income.

Median income figures are updated every few months to reflect current income levels. The last set of figures was updated on May 15, 2022.

Calculating Disposable Income for a Chapter 13 Plan

Calculator and paperwork; image via Pxhere, CC0.
Calculator and paperwork; image via Pxhere, CC0.

A common question is, “how much does bankruptcy cost in Michigan?” The total cost of filing bankruptcy can depend on the disposable income calculation. 

AMI is also used to calculate disposable income, which is a factor in how much you must pay to your unsecured creditors in a Chapter 13 plan. 

Disposable income is the amount of money you have leftover each month after you subtract allowable monthly living expenses. Please note, some living expenses are limited while others are not allowed. 

You can find more information about the allowable living expenses used in the Means Test from the United States Trustee’s Office. They have a list of the Census Bureau and IRS data used to calculate the Means Test on their website. Also, be sure to use the most current data because of the frequent, periodic updates. Finally, you can take a Chapter 13 bankruptcy calculator to help you estimate your Chapter 13 disposable income.

Michigan Credit Counseling and Debtor Education Courses for Chapter 13

You must take two bankruptcy courses as part of the bankruptcy process. You will need to take A Credit Counseling Course before filing a bankruptcy case. In addition, you will need to complete A Debtor Education Course after you file your bankruptcy petition.

Both classes are available online for a small fee. Here’s a list of approved companies for Credit Counseling Courses in Michigan. And here is a list of approved Michigan Debtor Education providers. Please note that you must use a company approved by the United States Trustee to provide bankruptcy courses in Michigan.

Michigan Bankruptcy Exemptions

Bankruptcy exemptions protect property in a bankruptcy case. The exemptions protect a certain amount of equity in property from being used to repay your creditors. Federal bankruptcy exemptions are found in 11 U.S.C. §562. You can also see a list of the federal bankruptcy exemptions published by the NCLC.

Michigan debtors can choose between federal bankruptcy exemptions or Michigan bankruptcy exemptions. You must choose either federal or state exemptions – you cannot mix them. Bankruptcy exemptions are revised every three years in Michigan. The most recent revisions of Michigan bankruptcy exemption were January 1, 2020. You can view the current Michigan bankruptcy exemption amounts here.

To take full advantage of the protections offered by bankruptcy exemptions, you need to compare the exemption amounts for federal and state exemptions to decide which list offers you the greatest protection of assets in Chapter 13. If you have assets with non-exempt equity, you won’t lose the assets in Chapter 13, but you will pay a higher amount each month for your Chapter 13 plan.

Residency Requirements for Michigan Bankruptcy Exemptions

You must have resided in Michigan for 730 days before filing your bankruptcy case to use Michigan bankruptcy exemptions. Otherwise, you must follow the state bankruptcy rules for the state you resided in for the greater part of 180 days before the 730 day period. 

If you have not lived in Michigan for the past two years or have substantial equity in your property, you may want to consult with a bankruptcy lawyer to ensure that you choose the correct bankruptcy exemptions to protect property in Chapter 13. Equity is calculated by subtracting valid liens and allowable exemptions from the fair market value of the property. 

Bankruptcy Courts and Trustees for Michigan

Michigan has two bankruptcy districts. The Eastern District of Michigan has three divisions. Bankruptcy courts are in Bay City, Detroit, and Flint. The Eastern District of Michigan has specific local rules and judges’ practices that you need to review before filing Chapter 13 if you do not have a bankruptcy attorney.

The Western District of Michigan has five divisions. These Bankruptcy courts are in Grand Rapids, Kalamazoo, Marquette, Traverse City, and Lansing. The Western District of Michigan also has local rules that you should review if you file bankruptcy without an attorney. 

Chapter 13 trustees are assigned to cases to administer the case. The United States Trustee’s office oversees Chapter 13 trustees. You can view a list of Michigan Chapter 13 trustees on the UST’s website. 

Should I file bankruptcy in Michigan?

Whether you should file bankruptcy is ultimately your decision, and you understand your finances and goals better than anyone. You can take a bankruptcy quiz to help answer that questions or you could also get a free bankruptcy consultation from a local attorney. 

Alternatives, you could compare debt settlement vs bankruptcy, which is a common alternative to a Chapter 13 bankruptcy in Michigan. Regardless, the goal is to help you be most informed in your decision.

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