Chapter 7 Bankruptcy in Livonia & Metro Detroit
Ditch your debt, not your dignity.
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
Chapter 7 is known as a “liquidation bankruptcy,” because of the possible drawback of the Chapter 7 process. That is, in exchange for the discharge of your debt, if you own excess or high-value property, it can be “liquidated” (sold off) by a representative of the Bankruptcy Court known as a Chapter 7 Trustee. The funds retrieved by the Trustee in such cases are used to at least partially repay your creditors.
The Chapter 7 Trustee has the power to do this once you file because, legally, at that point, all that you own or can claim to own is included in pool of assets known as the Bankruptcy Estate. The Chapter 7 Trustee is the Trustee of that Bankruptcy Estate.
But fear not: the US Bankruptcy Code and Michigan law will allow you to protect a certain amount of your property from this liquidation. In the majority of cases, this is sufficient to protect everything that a typical household contains.
When this is the case, you discharge your debt and lose nothing.
Tax Benefit of Chapter 7
Even better, unlike alternative option such as debt settlement, short sales, or deeds in lieu of foreclosure, debt discharged in Chapter 7 bankruptcy is non-taxable. This means that you will not receive a 1099 from your creditors after the bankruptcy discharge as happens with those other negotiated settlement options.
The Bankruptcy Automatic Stay Against Collections
However, the moment you file your Chapter 7, you will receive the immediate relief of the “Automatic Stay Against Collections,” or the “Bankruptcy Automatic Stay.” This Federal injunction prevents your creditors from engaging in any collections activity (especially garnishments!) for the duration of your Chapter 7 bankruptcy case.
There are also some forms debt that cannot be discharged in Chapter 7 bankruptcy at all, such as student loan debt and child support obligations.
Finally, you must be income-eligible to file for Chapter 7 bankruptcy at all. That is, if you earn too much money, the form of bankruptcy available to you in Michigan is Chapter 13 bankruptcy.
These and other important Chapter 7 points are discussed below.
Chpater 7
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
The process requires that you, first, gather information and documentation for your Livonia bankruptcy attorney, including the completion of a lengthy questionnaire. This will request information regarding your assets and debts and related information. We will use that information and documentation to draft your Chapter 7 Petition, Schedules, Statements, and related documents that will be filed on your behalf with the court.
Once you have reviewed and verified the accuracy of the draft bankruptcy petition documents, and signed each page requiring a signature, we will then file them for you with the Bankruptcy Court. The filing is electronic and results in an almost instantaneous institution of the Automatic Stay Against (creditors’) Collections.
The 341 Meeting of Creditors Hearing
Approximately 30 days from the date of filing, you will be required to attend a hearing called a 341 Meeting of Creditors. At this “341 Meeting,” you will be asked under oath questions about your debts and assets. While your creditors may appear to ask some of these questions, most will be asked by the Chapter 7 Bankruptcy Trustee.
Where Will my 341 Meeting of Creditors Be Held?
Since Covid, most 341 Meetings are handled via video or phone—but you may need to appear in person, depending upon your Chapter 7 Trustee’s preferences.
Depending upon the county you reside in, your hearing will be held by a Chapter 7 Trustee located in the Bankruptcy Courts located in Detroit, Ann Arbor, Flint, or Bay City, if you are in the Eastern District of Michigan. (Courts in the Western District are located in Grand Rapids, Lansing, Kalamazoo, and Traverse City.)
If all goes well and your Trustee is not liquidating any assets, your case will close with the issuance of an Order of Discharge 60 or so days after the conclusion of the 341 Meeting.
Chapter 7 Bankruptcy and Your Credit Report
A bankruptcy will remain on your credit report for 10 years from the date of filing of your Chapter 7 case. It will appear as a notation in the “public records” section of your reports. Thus, after a bankruptcy discharge, you will have to work to repair your credit for some amount of time afterward.
However, obtaining new credit is not as difficult as many believe, and a Chapter 7 discharge of debt can drastically alter your debt-to-income ratio for the better, increasing your FICO score under certain circumstances, depending upon the actions you take after your Chapter 7 discharge.
Regardless, if you are considering filing for Chapter 7 bankruptcy, your credit score is likely not your primary concern—despite what the finance industry wants you to believe.
If you are not actively applying for a loan or planning to, your credit score is essentially meaningless. It is not a barometer of your worth as a human being.
Chapter 7 Bankruptcy Eligibility: The Means Test
Eligibility for Chapter 7 bankruptcy is initially governed by a formula known as the Chapter 7 Means Test.
The Means Test is a mathematical formula that averages the gross income from all household sources (including earnings by other members of the household, even if they are not also filing for bankruptcy) other than Social Security from each of the 6 months before the month in which the bankruptcy is to be filed. That 6-month household average is then compared to the median income in Michigan for a household of that size.
If that average household income is higher than the median, a Chapter 7 may not be possible.
The Means Test: All In The Details
However, the Means Test does allow certain deductions to be made from the Means Test average income to reduce a household’s income back under the median to qualify a person for a Chapter 7 who might not otherwise have been.
Attorney John Hilla is experienced in maximizing Chapter 7 eligibility and assisting consumers in passing through the Means Test whenever it is realistically possible and whenever it is in their best interest to be in a Chapter 7.
Online “means test calculators” cannot give an accurate picture of Chapter 7 eligibility no matter what they advertise; a determination of true eligibility requires the skill and experience that a licensed bankruptcy attorney offers.
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.
