Is Chapter 7 Bankruptcy Right For Me?
Chapter 7 bankruptcy is designed to wipe out debts and allow you to get on with your life. It is the fastest and most straightforward type of bankruptcy, making it a popular choice for many Americans. Filing Chapter 7 bankruptcy generally works best if you are burdened with a lot of unsecured debt, like credit cards, medical bills, and personal loans. In most cases, you can keep your assets, like your car, home, and other valuables, when you file. The Court appoints a Chapter 7 Trustee to review your case and this is the person we meet with when we go to court.
Will I Lose My Property?
Chapter 7 bankruptcy is often called liquidation bankruptcy because some assets may be sold by the Trustee in order to pay back creditors. However, due to our expertise and guidance, actual liquidation occurs very infrequently. Both state and federal bankruptcy laws offer a list of specific items that a person, couple, or family may keep. These are called “exemptions” because they provide protection for assets which are then “exempt” from the bankruptcy and out of the reach of the creditors and the Chapter 7 Trustee. In the vast majority of cases, people who file Chapter 7 bankruptcy will not lose any of their property.
Will it Get Rid of All of My Debt and Judgments?
Chapter 7 bankruptcy wipes out almost every kind of debt and judgment. Some debts, such as student loans, cannot be treated in a Chapter 7 bankruptcy (but can be treated in a Chapter 13). Many people mistakenly believe that income tax debt cannot be discharged, but under certain circumstances, a Chapter 7 bankruptcy can even wipe out debts to the IRS.
Consider Chapter 7 Bankruptcy When:
- You are making your minimum credit card payments each month but not much more
- You have one or more payday loans
- You have medical bills
- Someone is trying to sue you
- You are making less money now than you had previously
- A change in family status (marriage, death in the family) has affected your finances
- Collectors are calling you and your family
- You have had a repossession
- You are being garnished
- You are stressed or worried about your finances. We offer a free consultation!
Michigan Credit Counseling and Debtor Education
According to US law, all individuals who file for bankruptcy must first obtain credit counseling. After they file for bankruptcy, they must then obtain debtor education. Beware of scam businesses that offer these services or who promise cheap, flat rate bankruptcy filing. The government has a list of all approved and licensed credit counseling agencies. For information about Michigan credit repair scams and reputable organizations, visit: https://www.michigan.gov/ag/0,4534,7-359-81903_20942-252598--,00.html
Credit counselors advise you on your money and debts, help you budget, and offer workshops. After completion, you are given a certificate to use in your bankruptcy filing. A reputable credit counseling agency will send you information and educational material at no cost and without your personal information. Credit counseling will also not affect your credit. An experienced lawyer can help you navigate the legal requirements and education needed to file for bankruptcy.
Alternatives to Chapter 7 Bankruptcy
It’s always important to consult with an attorney to understand the specifics of your case and to know whether you might have alternatives to Chapter 7 bankruptcy. Chapter 7 bankruptcy is a serious decision and should not be taken lightly. Sometimes, simpler or less consequential avenues may be possible. Other times, another form of bankruptcy may be more appropriate, such as Chapter 13 or Chapter 11.
Individuals who are engaged in business, such as corporations, partnerships, or sole proprietorships may prefer to remain in business and avoid any type of asset liquidation. In these circumstances, Chapter 11 might be more appropriate.
If you are currently making payments on your debts, a Michigan Chapter 7 bankruptcy may not always be the best option. Bankruptcy is considered a last resort - when there is no possible way to pay back your debts and you face asset acquisition, such as foreclosure, or wage garnishment. Chapter 7 can be a huge relief for these individuals but can cause more problems for those who do not need it. If you are currently paying some of your debts but have missed payment son others, there may be more options, such as debt settlement of debt consolidation.
Debt Settlement or Consolidation
You may be surprised by some creditors' willingness to settle a debt for less than what you owe. If you are making minimum payments, there is little likelihood a creditor will lower your debt. That said, if you are not making minimum payments, a creditor is faced with the real possibility that they may not get their money back. In these scenarios, many creditors are willing to settle your debt in full for less than what you owe.
Debt settlement can be arranged by an attorney or debt company, though some individuals negotiate on their own. Not all creditors will agree to settle a debt. If they do, most creditors will request a lump payment to settle. Though this option can help avoid bankruptcy, it can still have longterm consequences. Debt settlement can still negatively affect your credit. Additionally, when creditors report what you owe in a settlement, this sometimes must be reported as income at tax time.
Consolidation is another option if you owe multiple debts, such as credit cards, mortgage, personal loans, medical debt, or other debt. Consolidation is offered by a financial institution, such as your bank. In a consolidation, a bank gives you a loan to pay off all your debts, consolidating your debt into one payment. This can help reduce the stress and anxiety that often comes with owing many debts. That said, even consolidation can have a long-term impact on your credit score.
If you are facing debt and financial hardship, it’s always best to consult with an attorney to weigh your options. Though avoiding bankruptcy may seem like the best option, it may end up saving you money and causing less longterm consequences.
If you are unsure whether chapter 7 is right for you, please give our Ann Arbor bankruptcy lawyers a call today. We also have offices in Warren, Dearborn Heights, and Flint. We offer free, no-obligation consultations!