How to File for Chapter 7 in 2026

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

That analysis frequently determines whether Chapter 7 is safe for someone with built-up equity in Michigan property or a paid-off car. In Chapter 13, exemptions still matter, but in a different way. Rather of offering non-exempt residential or commercial property, the law typically requires that unsecured financial institutions receive a minimum of as much through your strategy as they would have received if you submitted Chapter 7 and your non-exempt assets were offered.

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For instance, a Michigan property owner with equity above the homestead exemption may pick Chapter 13, make a greater regular monthly payment for a set number of years, and still keep the house. Because the option in between Michigan and federal exemptions can tilt the balance between Chapter 7 and 13, this is not something to rate.

If Chapter 7 looks dangerous but the client's earnings can support a practical Chapter 13 payment, the recommendation may move toward Chapter 13 to protect hard-earned residential or commercial property. How each chapter treats your particular financial obligations often matters more than any abstract benefits and drawbacks list. Unsecured financial obligations, such as charge card, medical costs, payday advance, and numerous individual loans, usually get comparable outcome in both chapters, but through different paths.

In Chapter 13, unsecured creditors often receive a share of what you pay into the plan, which might be anywhere from a small percentage to the full amount, and the staying balance can be discharged at the end if you finish your plan. Safe financial obligations include residential or commercial property that works as collateral, such as a home mortgage on a home or a lien on a cars and truck.

Protecting Income From 2026 Bankruptcy Garnishment

Keeping a protected property often involves remaining existing on payments and, sometimes, signing a reaffirmation arrangement that keeps you personally accountable on that particular loan after personal bankruptcy. If you are far behind and can not catch up rapidly, surrendering the property in Chapter 7 eliminates your individual liability for any shortage balance after the lender offers it.

You can expand mortgage or vehicle loan defaults over a three to five-year plan, which is called curing defaults, while also resuming your routine month-to-month payments. In some scenarios, Chapter 13 likewise allows a reduction of specific vehicle loan balances to the vehicle's existing value, a principle referred to as cramdown, though in-depth rules apply.

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Priority and nondischargeable debts, such as recent earnings taxes, kid assistance, alimony, and most trainee loans, stand in a different category. These are usually not eliminated in Chapter 7, though the automated stay can stop briefly some collection while the case is pending. In Chapter 13, these financial obligations are frequently paid in complete through your strategy before unsecured creditors get anything.

At Hensel Law Workplace, PLLC, a detailed creditor list is mapped to these categories so you see exactly which debts will be removed, which need to be paid, and which chapter handles them better. Understanding for how long each chapter lasts and what every day life appears like throughout the case can decide feel less abstract.

Quickly after filing, the automated stay generally stops garnishments, lawsuits, and the majority of collection calls. You go to a conference of creditors, typically called the 341 conference, where the trustee asks questions about your paperwork and financial resources. After that, you generally await due dates to pass and for the court to issue a discharge, unless the trustee requires more details or is exploring non-exempt assets.

Comparing Chapter 7 Vs Chapter 7 in 2026

You file the case, and the automated stay enters into impact, stopping garnishments, foreclosure sales, and most collection activity. You propose a payment plan, 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 thinks about whether to approve the plan.

Many Michigan filers are surprised by how structured however manageable the day-to-day reality can be when the strategy is practical. In Chapter 7, your primary duties are to be honest, offer files, attend your conference, and complete a needed financial education course. In Chapter 13, the added responsibilities consist of staying with a budget plan, making every strategy payment on time, and reporting significant earnings changes.

As soon as you understand how each chapter works, the next step is lining that up with your goals. One core tradeoff is speed versus structure. Chapter 7 moves quicker and typically involves no long-term payment responsibilities, which interest Michigan occupants and homeowners who are existing on their home loans and have mainly unsecured debts.