What You Need to Know About Chapter 7 Bankruptcy in Livonia, Michigan

Chapter 7 bankruptcy is the form of bankruptcy that, in most cases, allows you to discharge your debts without paying anything to your creditors.

Chapter 7 and Your Property

This type of bankruptcy is known as a “liquidation bankruptcy.” In it, a Chapter 7 Trustee may sell high-value property you own. The Trustee uses the proceeds to pay your creditors at least partially.

Once you file, all of your assets form the Bankruptcy Estate. This includes anything you own or have a legal right to claim. The Chapter 7 Trustee controls the Bankruptcy Estate and manages its assets.

Don’t worry—federal and Michigan laws allow you to protect certain property through exemptions. These exemptions shield much of what you own.

In most cases, the exemptions protect everything a typical household owns. You erase your debt and keep all your belongings.

When this is the case, you discharge your debt and lose nothing.

Tax Benefit of Chapter 7

Even better, Chapter 7 bankruptcy discharges debt without creating a tax liability. Other options don’t offer this benefit.

Debt settlement, short sales, and deeds in lieu of foreclosure often trigger tax consequences. The IRS treats forgiven debt as income.

With Chapter 7, you won’t receive a 1099 from creditors after your discharge. You don’t owe taxes on discharged debt.

The Bankruptcy Automatic Stay Against Collections

When you file Chapter 7, you immediately gain relief through the “Automatic Stay Against Collections.” This is a powerful federal injunction.

The Automatic Stay stops all creditor activity during your case, including wage garnishments and collection calls. It takes effect instantly.

However, Chapter 7 does not discharge every type of debt. Some, like student loans and child support, remain fully enforceable.

You must also meet income limits to qualify for Chapter 7. If you earn too much, you must file Chapter 13 instead.

The sections below explain these and other key aspects of Chapter 7 bankruptcy in more detail.

Chapter 7 Bankruptcy Timeline

This process typically takes about a 4-months to conclude once it is filed with the US Bankruptcy Court.

Our Process

To begin, you must gather documents and complete a detailed questionnaire for your Livonia bankruptcy attorney.

The questionnaire asks about your assets, debts, and related financial details. We use this information to draft your Chapter 7 documents.

These include the Petition, Schedules, Statements, and other required forms. We prepare everything for filing with the Bankruptcy Court.

After you review the drafts, confirm accuracy, and sign all required pages, we file the documents electronically on your behalf.

Filing triggers the Automatic Stay immediately, stopping creditor collections almost instantly.

The 341 Meeting of Creditors Hearing

About 30 days after filing, you must attend a hearing called the 341 Meeting of Creditors.

At the 341 Meeting, you will answer questions under oath about your assets, debts, and financial history.

Creditors may appear and ask questions, but usually the Chapter 7 Trustee asks most of them.

Where Will my 341 Meeting of Creditors Be Held?

Since Covid, most 341 Meetings happen by video or phone. However, some Trustees may still require in-person attendance.

Your hearing location depends on your county and Trustee. You’ll appear before a Trustee in the appropriate Bankruptcy Court.

If you live in the Eastern District of Michigan, your hearing may occur in Detroit, Ann Arbor, Flint, or Bay City.

In the Western District, hearings are held in Grand Rapids, Lansing, Kalamazoo, or Traverse City.

If no assets are liquidated, the court will issue your Discharge Order about 60 days after the 341 Meeting ends.

Chapter 7 Bankruptcy and Your Credit Report

A Chapter 7 bankruptcy stays on your credit report for 10 years from the filing date. It appears in the “public records” section of your credit reports. You’ll need to rebuild credit after receiving your discharge.

That said, getting new credit may be easier than you expect.

A Chapter 7 discharge can improve your debt-to-income ratio and, in some cases, raise your FICO score. However, your post-bankruptcy actions will affect how quickly your credit improves.

Still, if you’re considering Chapter 7, your credit score likely isn’t your biggest concern.

Despite what lenders claim, a credit score doesn’t define your value as a person.

Unless you’re applying for a loan, your score doesn’t matter much at all.

Chapter 7 Bankruptcy Eligibility: The Means Test

Eligibility for Chapter 7 bankruptcy starts with the Chapter 7 Means Test.

The Means Test is a formula that averages your household’s gross income, excluding Social Security, over the past six months.

This includes income from all household members, even those not filing for bankruptcy.

The average income is compared to the median income for a household of your size in Michigan.

If your household income exceeds the median, you may not qualify for Chapter 7.

Click here to see the most recent Chapter 7 Means Test income eligibility numbers.

The Means Test: All In The Details

The Means Test allows certain deductions to lower your average income and help you qualify for Chapter 7.

Attorney John Hilla specializes in maximizing Chapter 7 eligibility, helping clients pass the Means Test when possible and beneficial.

Online “means test calculators” can’t provide an accurate assessment of eligibility. Only a licensed bankruptcy attorney can determine your true eligibility.

Other Chapter 7 Eligibility Concerns

Important Note: The Means Test is not the only test of Chapter 7 eligibility!

Even if you “pass” the Means Test, you may still be ineligible for Chapter 7 based upon “good faith” considerations. That is, the Bankruptcy Court will also look at your particular expenses to determine if you really do have the net monthly income available to pay something back to your creditors in a Chapter 13 bankruptcy rather than a Chapter 7.

This additional consideration is one reason why we will ask you to complete such a lengthy pre-filing questionnaire: to ensure that we know the answer to this question before you file and not after.

Hire the Right Metro Detroit Bankruptcy Attorney

This liquidation concern is the reason why, however, it is vital that you retain a Metro Detroit bankruptcy attorney with sufficient experience to ensure that Chapter 7 is the right choice for you—and your property—and with sufficient experience dealing with Chapter 7 Trustees to protect what it is rightfully yours.

Attorney John Hilla has protected Livonia and Detroit-area bankruptcy clients from debt collections and overeager Trustees since 2008 and has the experience you need to get the job done right.