Bankruptcy

This section provides an overview of important concepts for persons who are considering bankruptcy.  It is not designed as a "do-it-yourself" manual to complete a bankruptcy without the assistance of an attorney.  Please refer to the Official Bankruptcy Forms web site for a complete list of forms and instructions.  A more detailed review of bankruptcy procedure is published by the Administrative Office of the United States Courts in its manual entitled "Bankruptcy Basics". 

Types of Bankruptcy

There are two types of personal bankruptcy.  They are referred to as "Chapter 7" and "Chapter 13" based on the sections of the Bankruptcy Code that describe each type. 

There are signficant differences between a Chapter 7 and Chapter 13 bankruptcy.  A Chapter 7 bankruptcy generally involves liquidation of the debtor's non-exempt assets to cash, followed by payment of those funds to his or her creditors.  The debtor is then discharged from bankrupty without further obligation.  Please refer to the section on Chapter 7 for more information. 

In a Chapter 13 bankruptcy, the debtor is permitted to retain his or her exempt property, but the court will order the debtor to repay some debt during a 3 or 5 year repayment plan.   Review the section on Chapter 13 for more information.

Credit Counseling

Credit counseling is required before a person can file a bankruptcy petition.  A list of approved credit counseling agencies can be found at this location:  Approved Credit Counseling Agencies.  There are several approved agencies in Michigan.  The fee for credit counseling is $60.

Means Test

Debtors are not free to decide whether to complete a Chapter 7 or Chapter 13 bankruptcy.  In 2005, the Bankruptcy Code was changed to include a "Means Test."  The Means Test helps the court to determine whether a debtor has enough income to repay some of his or her debts.  If so, a debtor may be required to file under Chapter 13, rather than Chapter 7.  Refer to the Means Test section for more details.

Exempt Property

Only a certain portion of a debtor's property must be used to repay his or her debts.  The portion of property that the debtor may retain is referred to as "Exempt Property".  Please refer to the table in the Exempt Property section for a list of property that a debtor may retain. 

Non-Dischargeable Debts

All debts are not dischargeable in bankruptcy.  Non-dischargable debts include child support, spousal support, educational loans, and taxes.   Refer to the sections on Chapter 13 and Chapter 7 for a list of non-dischargeable debts in each case.