According to the 2005 Bankruptcy Act, all states must adhere to federal regulations for bankruptcy proceedings in District Courts. There are 8 District Courts in Michigan, separated into two regions, East and West. The most common types of bankruptcy filed are Chapter 7, Chapter 11, Chapter 12 and Chapter 13.
Types of Bankruptcy and Terms
Chapter 7 bankruptcy is typically filed by those who have a high amount of unsecured debt and few assets. Often a petitioner can "wipe clean" their financial slate with a Chapter 7 bankruptcy; however, non-dischargeable debts such as child support and taxes will remain their responsibility.
Alternatively, Chapter 13 is often filed by petitioners who have assets such as a home or car that they would like to keep. This code restructures debt and minimizes it so a debtor can generally become debt free in 3 to 5 years after filing for bankruptcy. Non-dischargeable debts are prioritized and creditors are held at bay while the debtor makes payments over the agreed upon time frame.
Similar to Chapter 13 is Chapter 11. This type of bankruptcy is specifically for businesses which wish to stay in operation, but need debt relief to do so. Often a period of 3 to 5 years is taken for the business to repay outstanding debt after filing. Chapter 12 is used in a comparable way, except for family farm and fishing businesses.
Steps to Filing Bankruptcy
Credit counseling is required by the 2005 Bankruptcy Act for all who petition for bankruptcy. This typically occurs within 6 months before filing. If an individual or business determines that bankruptcy is the best option for them, several other steps are taken.
The first step is to determine for which bankruptcy a petitioner is eligible. This is done by way of a Means Test. The Means Test compares the income of the petitioner over the last 6 months with the income of all other wage earners in the state of Michigan. If the debtor's income is lower, he or she is eligible for Chapter 7 or Chapter 13. Higher income petitioners have the option of Chapter 13 only.
Paperwork must then be gathered to submit to the bankruptcy court. This may include, but is not limited to: tax returns from the last 2 years, property deeds, vehicle titles, loan information, a list of all debts, an inventory of all possessions, record of any recent major financial transactions, and monthly living expenses. Chapter 13 petitioners are also required to write a summary of how debt can be paid off in 3 to 5 years for court approval.
These documents, along with necessary forms, are then given to the court and referred to as "the schedule." Some petitioners choose to hire legal counsel to help them along the way, while others file for bankruptcy on their own. A fee of $306 is due with Chapter 7 bankruptcy, but can be waived in some instances. Chapter 13 costs $281 to file and this fee cannot be waived. Of course, any attorney fees are the responsibility of the petitioner.
After the court has received the schedule, an automatic stay is issued to prevent creditors from contacting the debtor and to stop any foreclosure proceedings. Also at this time, a court appointed trustee reviews the case and collects non-exempt assets of the petitioner to settle his or her debt. The trustee arranges a 341 meeting for the negotiation of terms between the petitioner and their creditors. If no agreements can be made, a judge will intervene.
Finally, the individual filing for bankruptcy must complete a financial management course to fulfill court requirements. If Chapter 13 is filed, the petitioner should continue making payments as instructed to avoid ending up back in court.
Location Specific Information
As mentioned above, Michigan's District Courts are divided into an Eastern and Western District. The East District has locations in Bay City, Detroit, and Flint. Courts for the Western District are situated in Grand Rapids, Kalamazoo, Lansing, Marquette, and Traverse City.