When people find themselves unable to pay their bills, they often turn to the option of filing for bankruptcy. If you live in Michigan and are having financial problems, bankruptcy may be able to help you get back on track and relieve some of your stress. However, before you take any action, you need to know how the process works and what to expect. This blog post explores the aspects to consider and steps to take when filing for bankruptcy in Michigan. Keep reading to learn more!
What Is Bankruptcy?
Bankruptcy laws give people a fresh start by liquidating assets and creating repayment plans for their creditors.
Bankruptcy laws aim to accomplish the following:
- Provide a fresh start to honest debtors by relieving them of most of their debts.
- Pay debtors in an orderly manner if there is property to repay.
Signs that You May Need to File for Bankruptcy
When considering bankruptcy, it’s important to know that it’s not suitable for everyone.
Here are some signs that you may need to file for bankruptcy:
- You’re being threatened with foreclosure.
- You’re constantly being called by debt collectors.
- You’re using your credit cards to pay for rent and food.
- You’re unable to keep up with your mortgage payments.
- You’re unable to work a payment plan with your creditors.
Is Filing for Bankruptcy the Only Option?
Before considering bankruptcy, you should weigh all your options. Two alternatives to bankruptcy are settling your debts or taking credit counseling. You can consult an advisor to determine which option is best for you.
Your monthly payments can also be reduced if you consolidate your debt. Doing so will save money on interest and repay your debt more quickly. In addition, you can negotiate with your creditors directly. You will save yourself from bankruptcy if you are able to reach an agreement.
The Types of Bankruptcy
There are two main types of bankruptcies available for individuals in Michigan: Chapter 7 and Chapter 13.
Chapter 7
Chapter 7 bankruptcy is typically the first option considered as it takes only a few months to complete and does not involve any payments to creditors. Moreover, it is a good option for individuals with minimal living, and working needs to avoid losing unnecessary luxury items. As a final point, you won’t be able to catch up on mortgage or car payments if you file a Chapter 7 bankruptcy.
Chapter 13
Chapter 13 filers, on the other hand, are given three to five years to repay their debts. There are many distinctions between Chapter 13 and Chapter 7. For example, you can avoid foreclosure and car repossession while keeping all your property. Additionally, debts that cannot be discharged in bankruptcy can be negotiated with your creditor into a payment plan.
How to File for Bankruptcy in Michigan
There are some people who avoid bankruptcy because they are concerned they will not be able to afford a lawyer. Bankruptcy attorneys are expensive and the most costly part of filing for bankruptcy in Michigan. The good news is that you do not need an attorney to file for bankruptcy on your own.
Below are the steps to do so.
- Gather Your Michigan Bankruptcy Documents: You will need copies of your tax returns from the previous two years and your last 60-day pay stubs.
- Take a Credit Counseling Course: Learn more about the credit counseling course here.
- Fill Out the Bankruptcy Forms: You can download the forms free through USCOURTS.gov.
- Pay Your Filing Fee: Chapter 7 bankruptcy requires a court filing fee of $338. When your income does not exceed 150% of the poverty guidelines in Michigan, you can request a filing fee waiver.
- Print Your Bankruptcy Forms: Make sure to print all forms on regular, white 8.5″ x 11″ paper using black ink.
- File the Forms With the Michigan Bankruptcy Court: Forms can also be mailed to either the Eastern or Western Districts.
- Mail Documents to Your Trustee: You will be assigned a trustee after filing for bankruptcy.
- Take Another Course: Attend a debtor education course within 60 days of the 341 meeting.
- Attend Your 341 Meeting: Your creditors can attend this meeting to ask questions.
What Happens After You File for Bankruptcy in Michigan?
In most cases, you will be able to discharge your unsecured debts by declaring bankruptcy. Some debts, including student loans, child support, and alimony, cannot be discharged in bankruptcy. Some assets may also have to be surrendered, depending on your bankruptcy choice.
How Does Bankruptcy Affect Your Credit Score?
Upon filing for bankruptcy, your credit report will show bankruptcy for seven to ten years. This may reduce your chances of getting a loan or credit line in the future.
Rebuilding Your Credit Post Bankruptcy
Despite popular belief, bankruptcy does not mean the end of your financial future.
The following measures can help you rebuild your credit:
- Taking out a small loan.
- Guaranteeing on-time payments.
- Signing up for a secured credit card.
- Maintaining a good payment history.
- Checking your credit report for errors.
- Becoming an authorized user on a credit card.
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