Can I Choose Which Debts or Creditors to Include in My Bankruptcy?
The answer: Yes & No! Confused? Read more about the specifics of how debts are treated in bankruptcy and the key differences between filing a Chapter 7 and Chapter 13 bankruptcy in Michigan. Also, our firm does offer a free consultation - over the phone or at one of our six Michigan locations in: Detroit, Ann Arbor, Dearborn, Flint, Warren and Southfield. Call us today at 866-261-8282 for answers to your questions on debt settlementand bankruptcy. We specialize in debt resolution with over 50 years of combined legal experience. We have helped over 11,000 local Michigan residents find lasting debt relief and financial peace of mind.
Filing Chapter 13 Bankruptcy in Michigan
A Chapter 13 Bankruptcyreorganization is a customized debt consolidation program in which you make your best efforts to pay your creditors back over a 36 - 60 month timeframe. In the Chapter 13 plan, creditors are broken out into 3 main categories. Those 3 categories determine how debts are paid and treated under the plan payments.
Secured creditors take the highest priority in the Chapter 13 plan. These creditors have their loans secured by real or personal property, such as a home (real property) or a vehicle (personal property). If you are current on your secured debt, you DO NOT need to pay the debt in the chapter 13 plan and you are still able to maintain direct payments as long as the debt remains current. Secured creditors are the first to receive payment through the repayment plan. Any arrearages on a home loan (past due payments) are paid back at 0% interest over the full length of the plan(36 - 60 months) with no continued late penalties. Most secured creditors are paid back in full, but there are some exceptions, such as:
- Second Mortgages or Home Equity Loans: In many cases we can legally remove a second mortgage or home equity loan. We determine this based on the value of the home versus what is owed on the first mortgage.
- Vehicle Cramdown: If you have owned your vehicle for over 2.5 years we can actually reduce the balance of what you owe to the current market value of the vehicle. This will most often reduce your monthly payment.
- Loan modifications: We can often negotiate loan modifications to reduce your payments or possibly the balance you owe, especially in the case of a balloon mortgage that comes due within the next 5 years.
- Rental Property Cramdowns: Similar to a car vehicle loan, we can also explore reducing the amount owed on a rental property to the current fair market value.
The main example of priority debt is personal income taxes: State, Local or IRS tax debt. These debts ARE included in the plan, but don't necessary have to be paid in full during the course of the plan. Any unpaid amounts will survive the duration of the plan (and have to be paid after the completion of the plan).
Unsecured debts take the lowest priority. Examples of common unsecured debts are:
- Credit cards;
- Medical bills;
- Personal loans;
- Loan deficiency debt;
- Old utility bills;
- Older personal income tax debts (typically over 3 years).
All unsecured creditors to which you owe money MUST be included in the Chapter 13 plan. However if you have unsecured creditors with no current debt (i.e. credit card with no current balance), then you do not need to include that creditor or disclose the available credit. If you have unsecured debt, there several unique tools in the Chapter 13 program to help you reduce debt and save money:
- All unsecured creditors are paid back at 0% interest with no continued late penalties or late reports to the credit reporting agencies;
- You are only required to pay back what you can afford based on your "best efforts" over course of the plan. Whatever debt balances remain are legally eliminated at the completion of the program, reducing your debt-to-income ratio.
- Unsecured creditors are paid only after you are current on secured debt. The balances are deferred without any penalty to your credit or additional interest.
- Creditors are required to file a "Proof of Claim" with the court under a court set deadline. If the creditor fails to file a claim, they will not participate in payments through the plan and the full debt will be legally eliminated at the completion of the program with a court discharge.
Filing Chapter 7 Bankruptcy in Michigan
- Secured Debt: If you are current on your secured debt obligations and within the equity exemption allowances (there is no unprotected equity forcing a sale of the property - this issue would be discussed in more detail at the free office consultation), than you do not need to include the debt in the Chapter 7 filing for debt elimination. You need to list all secured creditors in the Chapter 7 petition, but you can elect not to eliminate the debt by signing a reaffirmation agreement.
- Priority Debt: Current tax liabilities (those debts incurred within the last 3 years) cannot be discharged in a Chapter 7 bankruptcy.
- Unsecured Debts: All unsecured debts HAVE to be included in the Chapter 7 petition. Again, if you have a zero balance on available credit you do not need to include that creditor. All general unsecured debts are legally eliminated through the Chapter 7 discharge allowing you to make a fresh financial start.
Rely on Our Bankruptcy Expertise
As you can see, bankruptcy has many facets and making sure that you derive the most benefit from filing is important. Hiring a qualified Michigan bankruptcy attorney is imperative for finding success and the best long terms benefits of filing. Trust our A+ rating with the Better Business Bureau and read our client reviews and testimonials to understand why Acclaim Legal Services receives most of our business from past clients and other partners who understand our quality work product and focused efforts on high customer service. We encourage you to call us at 866-261-8282 to get answers to your questions and understand your options more thoroughly. You can also schedule a phone call or in-office appointment online by clicking here.