Filing Bankruptcy is Not the Only Option

Updated: Nov 25, 2020

If you have more than $10,000 in debt and are looking for a way to significantly reduce or eliminate it, using a debt resolution service, as opposed to filing chapter 13 or 7 bankruptcy may be the way to go. When you file chapter 13 bankruptcy you will work with an attorney as well as the court to create a three to five-year repayment schedule for the debts you owe.

If some of the debts are secured like a home mortgage the payback time may be extended beyond five years. At the end of five years, any unpaid, unsecured debt will be discharged. If there is more than $1,184,200 in secured debt such as houses, cars and then like or more than $394,725 in unsecured debts for credit cards, loans or unpaid medical expenses (the limits are adjusted for inflation), you won’t be able to qualify to file chapter 13 bankruptcy.

In chapter 7 bankruptcy there is no limit on the amount of debt you can have and still file. Many people prefer to file chapter 7 instead of chapter 13 because you are walking away from the debt as opposed to having to repay it. Chapter 7 is available to any individual and has no limit on the amount of debt they can have.

One thing that can be an issue when filing chapter 7 is your income. There are guidelines that determine if you can qualify or not. The guidelines change depending on what state you are in. If you want to file in Michigan, you will need to pass the Michigan means test which applies to higher income filers so if you income is lower than the Michigan median for your household size, you are exempt from the test and can file Chapter 7. If your income is higher than the Michigan median amount, then you will need to complete the means test calculations to determine if you can pay back a part of your unsecured debts through chapter 13 bankruptcy.

If most of the debt you have is consumer then you are exempt from the means test. You can also be exempted if you are a disabled veteran and acquired your debt during active duty of homeland defense activities. If your current household income per month is below what the Michigan median income for a household of your size is it is generally assumed that you pass the means test and can file Chapter 7.

Median household income is determined by taking the av3rage monthly income over the last six calendar months. When you have determined the average median income per month, multiply that by 12 to get your annual income to determine if you qualify under the Michigan median income test. The income levels for a father and mother with up to 4 kids are as follows. 1 Member Household - $44,072.00, 2 Member Household - $52,540.00, 3 Member Household - $61,110.00, 4 Member Household - $74,863.00, 5 Member Household - $82,963.00, 6 Member Household - $91,063.00

If your household income is over the limit, then you will have to complete a means test using income and expense information. The income for the means test will include what you bring in from your business, rental properties, interest and dividends, pension and retirement plans, any money paid by others for the support of your household as well as unemployment income.

Most of the information related to your expenses will be based on national, state and local averages coming from the Census Bureau and the Internal Revenue Service. There are also some expenses you can include like legal, health and welfare obligations. Once you have listed all the information, subtract your expenses from your income to get your income available to pay expenses under Michigan bankruptcy laws.

In general filing Chapter 7 bankruptcy is better if you are not looking to keep secured property like a house. However, you should consult an attorney to get a good understanding of your options and what may be the best alternative for your situation. If you are having problems paying your mortgage, you can still end up having to deal with foreclosure in Chapter 7 whereas you have more power to prevent foreclosure in chapter 13. In chapter 13 you still must pay back most of your debts including spousal and child support. Any changes in employment or your financial situation, could make it hard for you to maintain payments in Chapter 13. If you cannot keep up with the payments in Chapter 13, you may be forced to switch to Chapter 7.

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