Key Consequences of 2026 Bankruptcy

In Chapter 7, the trustee looks at your possessions and compares their equity to the exemptions you declare. Equity is the value of the home minus what you owe on it. If your equity in a home, automobile, or other home is fully covered by exemptions, the trustee generally leaves that asset alone.

That analysis typically identifies whether Chapter 7 is safe for someone with built-up equity in Michigan property or a paid-off automobile. In Chapter 13, exemptions still matter, however in a various way. Rather of selling non-exempt residential or commercial property, the law typically needs that unsecured lenders receive a minimum of as much through your plan as they would have received if you filed Chapter 7 and your non-exempt assets were offered.

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For instance, a Michigan homeowner with equity above the homestead exemption may choose Chapter 13, make a higher month-to-month payment for a set number of years, and still keep your home. Because the choice between Michigan and federal exemptions can tilt the balance between Chapter 7 and 13, this is not something to think at.

If Chapter 7 looks risky but the customer's earnings can support a realistic Chapter 13 payment, the recommendation may move toward Chapter 13 to protect hard-earned home. How each chapter treats your specific financial obligations often matters more than any abstract advantages and disadvantages list. Unsecured debts, such as credit cards, medical bills, payday advance, and numerous individual loans, normally get similar outcome in both chapters, however through different courses.

In Chapter 13, unsecured lenders often get a share of what you pay into the strategy, which may be anywhere from a small portion to the full quantity, and the remaining balance can be released at the end if you complete your plan. Safe debts involve home that acts as security, such as a mortgage on a home or a lien on a car.

How to Stop Wage Garnishment Through 2026 Bankruptcy

Keeping a protected property frequently involves staying present on payments and, in many cases, signing a reaffirmation contract that keeps you personally liable on that specific loan after personal bankruptcy. If you are far behind and can not capture up rapidly, surrendering the residential or commercial property in Chapter 7 wipes out your individual liability for any shortage balance after the lending institution sells it.

You can spread out mortgage or vehicle loan defaults over a three to five-year plan, which is called curing arrears, while also resuming your regular monthly payments. In some circumstances, Chapter 13 also allows a reduction of particular car loan balances to the vehicle's current worth, an idea called cramdown, though detailed rules apply.

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Top priority and nondischargeable debts, such as recent income taxes, kid support, spousal support, and the majority of trainee loans, stand in a different category. These are generally not eliminated in Chapter 7, though the automated stay can pause some collection while the case is pending. In Chapter 13, these debts are typically paid in complete through your strategy before unsecured financial institutions get anything.

At Hensel Law Office, PLLC, an in-depth financial institution list is mapped to these categories so you see exactly which debts will be erased, which must be paid, and which chapter handles them more effectively. Understanding how long each chapter lasts and what daily life appears like throughout the case can make the choice feel less abstract.

Quickly after filing, the automatic stay typically stops garnishments, claims, and a lot of collection calls. You go to a conference of creditors, often called the 341 meeting, where the trustee asks concerns about your documentation and financial resources. After that, you mainly wait for deadlines to pass and for the court to issue a discharge, unless the trustee requires more information or is exploring non-exempt properties.

Long-Term Impacts of 2026 Bankruptcy

You file the case, and the automatic stay goes into result, stopping garnishments, foreclosure sales, and a lot of collection activity. You propose a payment strategy, start making regular monthly payments to the Chapter 13 trustee, and participate in a 341 conference and, in most cases, a verification hearing where the judge considers whether to approve the plan.

Lots of Michigan filers are amazed by how structured however workable the everyday truth can be when the plan is sensible. In Chapter 7, your primary responsibilities are to be truthful, supply documents, attend your meeting, and complete a needed financial education course. In Chapter 13, the added obligations consist of adhering to a budget, making every plan payment on time, and reporting significant earnings modifications.

When you comprehend how each chapter works, the next step is lining that up with your objectives. One core tradeoff is speed versus structure. Chapter 7 relocations much faster and generally includes no long-lasting payment responsibilities, which appeals to Michigan renters and homeowners who are existing on their home loans and have primarily unsecured financial obligations.