Choosing Chapter 13 for Your 2026 Benefit

In Chapter 7, the trustee looks at your properties and compares their equity to the exemptions you declare. Equity is the worth of the property minus what you owe on it. If your equity in a home, vehicle, or other residential or commercial property is fully covered by exemptions, the trustee typically leaves that possession alone.

That analysis frequently identifies whether Chapter 7 is safe for somebody with built-up equity in Michigan realty or a paid-off car. In Chapter 13, exemptions still matter, but in a different method. Rather of selling non-exempt home, the law generally requires that unsecured lenders get a minimum of as much through your plan as they would have gotten if you submitted Chapter 7 and your non-exempt properties were sold.

apfsc.org

For instance, a Michigan property owner with equity above the homestead exemption might choose Chapter 13, make a higher regular monthly payment for a set variety of years, and still keep your house. Since the choice between Michigan and federal exemptions can tilt the balance between Chapter 7 and 13, this is not something to rate.

If Chapter 7 looks risky however the client's income can support a realistic Chapter 13 payment, the suggestion may shift towards Chapter 13 to safeguard hard-earned home. How each chapter treats your specific debts typically matters more than any abstract pros and cons list. Unsecured financial obligations, such as charge card, medical costs, payday advance loan, and many individual loans, typically receive comparable end results in both chapters, however through various courses.

In Chapter 13, unsecured lenders typically get a share of what you pay into the plan, which may be anywhere from a little portion to the complete quantity, and the staying balance can be discharged at the end if you complete your strategy. Guaranteed financial obligations include home that functions as collateral, such as a mortgage on a home or a lien on an automobile.

Step-By-Step 2026 Bankruptcy Support

Keeping a secured possession typically includes staying current 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, giving up the home in Chapter 7 erases your individual liability for any deficiency balance after the loan provider offers it.

You can expand home loan or auto loan financial obligations over a three to five-year strategy, which is called treating defaults, while also resuming your routine month-to-month payments. In some circumstances, Chapter 13 likewise allows a reduction of particular automobile loan balances to the vehicle's existing worth, an idea called cramdown, though comprehensive guidelines apply.

apfsc.org

Top priority and nondischargeable debts, such as current income taxes, child support, spousal support, and most trainee loans, stand in a different classification. These are typically not erased in Chapter 7, though the automatic stay can stop briefly some collection while the case is pending. In Chapter 13, these debts are often paid completely through your strategy before unsecured creditors get anything.

At Hensel Law Workplace, PLLC, an in-depth lender list is mapped to these classifications so you see exactly which debts will be erased, which should be paid, and which chapter manages them better. Understanding for how long each chapter lasts and what every day life looks like during the case can decide feel less abstract.

Soon after filing, the automated stay usually stops garnishments, claims, and the majority of collection calls. You go to a conference of financial institutions, frequently called the 341 meeting, where the trustee asks questions about your paperwork and finances. After that, you primarily wait for due dates to pass and for the court to release a discharge, unless the trustee requires more details or is checking out non-exempt properties.

Choosing Chapter 7 Vs Chapter 13 in 2026

You submit the case, and the automatic stay enters into effect, stopping garnishments, foreclosure sales, and a lot of collection activity. You propose a payment strategy, begin making month-to-month payments to the Chapter 13 trustee, and participate in a 341 meeting and, in many cases, a verification hearing where the judge considers whether to approve the plan.

Numerous Michigan filers are surprised by how structured but workable the daily reality can be when the plan is sensible. In Chapter 7, your primary duties are to be honest, provide documents, attend your conference, and finish a needed financial education course. In Chapter 13, the added duties include sticking to a budget plan, making every plan payment on time, and reporting significant earnings changes.

Once you understand how each chapter works, the next action is lining that up with your objectives. One core tradeoff is speed versus structure. Chapter 7 moves much faster and generally involves no long-term payment commitments, which interest Michigan renters and property owners who are present on their home mortgages and have mainly unsecured debts.