Frequently Asked Questions About Bankruptcy

Are you struggling to make ends meet? Unable to keep up with your debts and getting deeper into a financial hole? Filing for bankruptcy could provide significant help and much needed relief.

Filing for bankruptcy can give you a chance to start fresh by eliminating debts that you simply can’t pay. It may also enable creditors to attain some level of repayment based on your non-exempt assets available for liquidation.

It’s an involved process though. So we’ll take a look at the most frequently asked questions about bankruptcy  by those who are in a position to take advantage of filing for bankruptcy.

The Most Frequently Asked Questions About Bankruptcy in Michigan

In a nutshell, bankruptcy is a legal process that helps individuals (and businesses) if they’re unable to pay their debts. This may be done by liquidating non-exempt assets or creating a repayment plan.

Here are the most common questions:

1. What Types of Bankruptcy Are Available?

The Bankruptcy Code in the U.S. consists of seven distinct types of bankruptcy to address debts owed. The types of available bankruptcies apply to certain types of debtors. For example, one type (Chapter 9) applies only to municipalities to reorganize debt; another (Chapter 15) deals with debt involving more than one country.

Chapter 7 and Chapter 13 are the most common bankruptcies filed. This is primarily because they apply to both businesses and individuals. So if you’re looking to file for bankruptcy, it will most likely be one of these two options.

In a Chapter 7 bankruptcy, if you’re unable to pay your debts, you’re assigned a trustee who will sell your non-exempt assets and use the proceeds to pay your creditors. You will likely keep most of your property, which is considered exempt, and may be able to keep some real estate. This will depend on state and federal laws applicable to you (see question #6 below).  Meanwhile, if you’re living below your means but have a steady income, Chapter 13 bankruptcy will probably be recommended. You’ll be required to use your earnings to pay your debts to creditors (either partially or in some instances in full) over a period of 3-5 years. The length of the plan will depend on your household income. You’ll have to pay all secured debts, like mortgages and car loans, in full if you wish to keep the collateral. However, you may only pay part of unsecured debts such as credit cards. 

With Chapter 13 bankruptcy, you’ll also need to file required documents and forms, pay the filing fee, make payments according to the plan, and attend financial management classes.

2. How Does Bankruptcy Affect My Credit Score?

When you file for bankruptcy, it will show up on your credit report and negatively impact your credit score to some degree. A Chapter 7 bankruptcy will be reported on your credit report for the next 10 years, while a Chapter 13 bankruptcy remains on your credit report for a maximum of 7 years.

3. Will All of My Debts Be Discharged in Bankruptcy?

In general, your unsecured debts will be dischargeable. This includes but is not limited to the following:

• Credit card debts
• Credit union loans
• Bank loans
• Personal loans
• Car repossession deficiency balances
• Medical debts
• Payday debts
• Debts resulting from negligence
• Utility bills
• Rent owed to a previous landlord
• Judgments

Certain debts cannot be discharged once you file for bankruptcy, however. They are as follows:

• Income tax liabilities for returns due within 3 years before the bankruptcy filing
• Income tax liabilities for tax returns that were never filed
• Child support
• Spousal support
• Debts for injuries to another person or property resulting from impaired driving
• Debts incurred through fraud
• Debts arising from intentionally harming another person or property
• Most student loan debts
• Fines and penalties
• Criminal restitution

Your bankruptcy lawyer can discuss these different debts with you to help you understand what may be discharged in your case.

4. How Much Does It Cost to File for Bankruptcy?

Legal fees can vary based on the complexity of your bankruptcy case. An experienced bankruptcy lawyer will be able to provide a range of costs based on your situation and the specifics of your case.

5. Do I Qualify for Bankruptcy?

To qualify for Chapter 7 where your debts are primarily consumer- or household-related, you must pass the means test. This test compares your household income over the past 6 months to preset median income numbers and determines whether you may file Chapter 7.

By contrast, Chapter 13 is a reorganization bankruptcy and is only available to those with regular income. Therefore, to qualify for a Chapter 13 bankruptcy, you must generally have sufficient disposable income to fund a repayment plan.  

6. Will I Lose My Property in a Bankruptcy?

Not necessarily. There are different options regarding keeping your home when filing for bankruptcy. The typical options are:

• You keep your home and continue paying the same amount each month.
• You keep your home and continue paying the same amount each month, plus an additional amount to catch up on delinquent payment.
• You keep your home and reduce your monthly payments through a mortgage loan modification.
• You surrender your home because it isn’t in your best financial interest to keep it.

These options will depend on what chapter bankruptcy case you file and how your home is titled. An experienced bankruptcy lawyer can help you navigate how to handle this important asset.

7. Will I Be Able to Keep My Car?

Most likely. In terms of keeping your car, there are similar options to those for keeping your house when filing for bankruptcy. They are as follows: 

• You keep your car and continue paying the same amount each month.
• You keep your car and reduce your monthly payments.
• You surrender your car because it isn’t in your best financial interest to keep it.

Again, which option is right for you will depend on what chapter bankruptcy case you file.

8. Are My Savings and/or Retirement Accounts Affected by Bankruptcy?

Most of the time, you’re able to keep your savings account after filing for bankruptcy. There are some considerations, however. Your bank or credit union could close your account if you owe money, or have an overdraft or other debts. They may also freeze your account to protect creditors’ assets. And if you’re hiding savings account funds from creditors, this is considered a fraudulent act and could incur penalties.

As for your retirement funds, unless there are unusual or extreme circumstances, they will not be affected by bankruptcy.

9. How Do I Rebuild My Financial Life Post-Bankruptcy?

Once you start getting back on your feet after filing for bankruptcy, there are straightforward things you can to rebuild your financial life.

First, develop a realistic budget to better manage your finances. If this is difficult to do on your own, consider enlisting the services of financial counseling to help you stay on track.

Pay your ongoing bills and expenses such as mortgages, rent, car payments and utility bills on time each month, and do not miss these payments. Doing so will help improve your credit score and overall financial health dramatically. 

Be sure to stay aware of any new laws or regulations that could affect your finances. And if you have any remaining creditors, make it a priority to maintain clear communication with them.

Is Bankruptcy Right for You?

Now that you know the answers to the most frequently asked questions about bankruptcy, you can see that filing for bankruptcy is not a ruinous event. In fact, it could very well give you a brand-new start.

The best way to get that start is by reaching out to highly experienced bankruptcy attorneys who will determine whether a Chapter 7 bankruptcy or a Chapter 13 bankruptcy is right for you.

We are those attorneys. So contact us today to arrange a free 30-minute consultation to speak with us. And find the light at the end of your financial tunnel.