Should You Use Chapter 7 in 2026?

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

That analysis typically identifies whether Chapter 7 is safe for someone with built-up equity in Michigan genuine estate or a paid-off automobile. In Chapter 13, exemptions still matter, but in a various method. Rather of offering non-exempt home, the law usually needs that unsecured financial institutions get a minimum of as much through your strategy as they would have received if you submitted Chapter 7 and your non-exempt assets were sold.

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For example, a Michigan house owner with equity above the homestead exemption may pick Chapter 13, make a higher month-to-month payment for a set number of years, and still keep your home. Due to the fact that the option in between Michigan and federal exemptions can tilt the balance in between Chapter 7 and 13, this is not something to rate.

If Chapter 7 looks risky however the client's earnings can support a realistic Chapter 13 payment, the suggestion may move towards Chapter 13 to protect hard-earned home. How each chapter treats your particular debts typically matters more than any abstract benefits and drawbacks list. Unsecured debts, such as credit cards, medical expenses, payday loans, and numerous individual loans, generally receive comparable outcome in both chapters, but through different courses.

In Chapter 13, unsecured lenders often receive a share of what you pay into the plan, which might be anywhere from a little portion to the full amount, and the remaining balance can be discharged at the end if you complete your plan. Guaranteed financial obligations involve property that works as security, such as a home loan on a home or a lien on a car.

Choosing Chapter 7 Vs Chapter 13 in 2026

Keeping a protected asset frequently includes remaining current on payments and, in some cases, signing a reaffirmation agreement that keeps you personally liable on that specific loan after bankruptcy. If you are far behind and can not capture up rapidly, surrendering the residential or commercial property in Chapter 7 erases your individual liability for any deficiency balance after the lending institution offers it.

You can spread out home mortgage or vehicle loan defaults over a three to five-year plan, which is called curing arrears, while likewise resuming your regular monthly payments. In some circumstances, Chapter 13 likewise permits a reduction of specific lorry loan balances to the car's present value, a concept called cramdown, though detailed guidelines use.

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Top priority and nondischargeable debts, such as recent income taxes, child support, alimony, and most trainee loans, stand in a separate classification. These are usually not eliminated in Chapter 7, though the automatic stay can pause some collection while the case is pending. In Chapter 13, these debts are typically paid completely through your plan before unsecured creditors get anything.

At Hensel Law Office, PLLC, a detailed financial institution list is mapped to these categories so you see precisely which financial obligations will be erased, which need to be paid, and which chapter handles them better. Knowing how long each chapter lasts and what daily life appears like throughout the case can make the decision feel less abstract.

Quickly after filing, the automatic stay generally stops garnishments, lawsuits, and the majority of collection calls. You go to a conference of financial institutions, often called the 341 meeting, where the trustee asks questions about your paperwork and financial resources. After that, you primarily wait on due dates to pass and for the court to release a discharge, unless the trustee needs more information or is exploring non-exempt properties.

New Legal Requirements for 2026 Bankruptcy

You file the case, and the automated stay goes into result, stopping garnishments, foreclosure sales, and many collection activity. You propose a repayment plan, begin making monthly payments to the Chapter 13 trustee, and go to a 341 conference and, oftentimes, a confirmation hearing where the judge thinks about whether to approve the strategy.

Numerous Michigan filers are shocked by how structured but manageable the everyday truth can be when the plan is sensible. In Chapter 7, your primary responsibilities are to be sincere, offer files, attend your meeting, and complete a needed financial education course. In Chapter 13, the included responsibilities include sticking to a budget, making every strategy payment on time, and reporting considerable income modifications.

As soon as you comprehend how each chapter works, the next action is lining that up with your goals. One core tradeoff is speed versus structure. Chapter 7 moves faster and generally involves no long-term payment responsibilities, which attract Michigan tenants and house owners who are present on their home mortgages and have mostly unsecured financial obligations.