How to File for Bankruptcy in Michigan

In the U.S., bankruptcy cases are heard in federal courts. There are some state laws regarding exemptions from bankruptcy, meaning the property that a debtor can protect in a bankruptcy proceeding. Yet for the most part, bankruptcy law is federal law.

The first step for filing a bankruptcy case in the state of Michigan is to decide the type of bankruptcy for which the applicant is submitting the petition.

The most common types of bankruptcy are:

• Chapter 7 bankruptcy (liquidation bankruptcy) for individuals, married couples and companies
• Chapter 11 bankruptcy (reorganization bankruptcy) for individuals, married couples and companies
• Chapter 13 bankruptcy (wage earner’s plan) for individuals and married couples. The party filing the petition is the debtor, and the parties to whom they owe money are their creditors.

There are two bankruptcy district courts in Michigan:

• U.S. Bankruptcy Court for the Eastern District of Michigan
• U.S. Bankruptcy Court for the Western District of Michigan

Each has multiple locations. The debtor should file for bankruptcy in the district where they reside. If the debtor is a company, it should file in the district where the business is headquartered.

The general process of filing for bankruptcy in Michigan involves a number of steps common to filing for bankruptcy in any U.S. Bankruptcy Court. The process follows the same steps for all chapters in both the Eastern District of Michigan and the Western District of Michigan.

The steps for a bankruptcy case in Michigan are:

1. Hire an attorney. (This is not required, but is highly recommended.)
2. Complete credit counseling from a government-approved organization within 180 days before filing.
3. File bankruptcy petition with the court and pay the filing fee. Bankruptcy filing fees are the same in both the Eastern District of Michigan and the Western District of Michigan.
4. Attend the "341 meeting" of creditors.
5. Complete a post-filing debtor education course. This may not be completed at the same time as credit counseling.
6. Court will issue an order to discharge the debt.
7. Court will close the case.

A debtor can find the appropriate forms for filing for bankruptcy on the U.S. Courts’ bankruptcy forms website.

After a bankruptcy case closes, the debtor’s creditors are prohibited from trying to collect on discharged debts, but creditors can still collect on debts that the court has not discharged. The debtor should focus on rebuilding their credit score:

• ‌Chapter 7 Bankruptcy.‌ Stays on a debtor’s credit report for up to 10 years from the date of filing.
  
• ‌Chapter 11 Bankruptcy.‌ Stays on a debtor’s credit report for up to 10 years from the date of filing.
  
• ‌Chapter 13 Bankruptcy.‌ Stays on a debtor’s credit report for up to seven years from the date of filing.

Bankruptcy exemptions are laws that protect personal and real property in bankruptcy. In Michigan, a debtor can choose between using the federal exemptions and Michigan state exemptions/mileg.aspx?page=GetObject&objectname=mcl-600-5451).

A person who chooses Michigan state exemptions can also use the federal non-bankruptcy exemptions. A state wildcard exemption protects property that is not protected under any other exemptions. Exempt property not listed in the table below include public benefit and insurance exemptions.

An individual debtor homeowner can protect more equity in their home if they use the Michigan state exemption rather than the federal exemption. Married debtors who are not 65 years old or disabled can protect more with the federal exemptions. A debtor who does not own a home can protect more of their property by using the federal exemptions because of the higher vehicle, tools of the trade and wildcard exemptions.

A Chapter 7 bankruptcy is appropriate for a debtor who wants to sell assets to pay off their debts, but is not appropriate for the owner of a business who wants the company to remain open through the life of the bankruptcy case. A Chapter 7 bankruptcy case results in the closure and dissolution of a business.

A Chapter 11 bankruptcy is appropriate for a debtor who wants to retain control of their business and reorganize it while paying off some of their debts.

A Chapter 13 bankruptcy is appropriate for a debtor with a stable income who can make regular payments over the course of three to five years.

A debtor can qualify for Chapter 7 or Chapter 11 bankruptcy whether they are an individual, married couple or company. There are no minimum or maximum amounts of debt necessary to qualify under these chapters.

A debtor qualifies for Chapter 13 bankruptcy if they are an individual or married couple. There is no minimum amount of debt necessary to qualify under this chapter.

Secured debt is debt that is backed by collateral, like personal or real property. Unsecured debt is debt not backed by any collateral. A court may disqualify a debtor for bankruptcy if the debtor does not answer questions or follow the orders of the court, including making payments according to a payment plan. A court disqualifies the debtor by dismissing their bankruptcy case.

A debtor can locate a bankruptcy lawyer in their area by searching online or in telephone directories for bankruptcy attorneys. Alternatively, they can contact the Michigan State Bar’s legal resource and referral center.

The Michigan State Bar offers three basic types of assistance:

1. ‌Attorney Search.‌ Self-guided attorney search of the Michigan State Bar’s online directory. The directory allows a potential client to search for lawyers by practice area and geographic location. It contains information about attorneys' backgrounds, areas of expertise and reviews.
2. ‌Referral Service.‌ Lawyer referral service of the Michigan State Bar. Potential clients are helped by a referral assistant, who matches them with law firms in the requested practice area. The service costs $25. The referred attorney provides up to a 25-minute initial consultation. The charge will be waived in some instances. The service is available 8:30 a.m. to 4:45 p.m. Monday through Friday.
3. ‌Moderate Means Program.‌ Modest Means Program of the Michigan State Bar. This program connects moderate-income clients with attorneys who provide reduced-cost legal assistance. This is not a free program; applicants must pay for services received.

A person who cannot pay for legal services can search the Michigan State Bar’s Guide to Legal Help. This tool helps to determine if individuals qualify for legal aid or other resources.

This depends on the chapter of bankruptcy and the specific details of the case. Generally, a Chapter 7 bankruptcy takes between four and six months; a Chapter 11 bankruptcy takes between six months and two years; and a Chapter 13 bankruptcy takes between three and five years.

The amounts of real and personal property that are exempt from bankruptcy in Michigan depends on the exemptions available to the debtor. A debtor can choose between federal exemptions and Michigan state exemptions. The exemptions chart above is a partial list of these data.

A debtor can file for bankruptcy on their own in Michigan, but it is highly recommended that they retain a bankruptcy attorney to consult or represent them in court, if necessary.

A person can file for bankruptcy in Michigan if they are on a fixed income.

The benefits of bankruptcy in Michigan include potentially getting some debts discharged. Debtors also see lender collection efforts stayed (paused) as the case proceeds through bankruptcy court.

The basic costs for bankruptcy in Michigan are $338 for a Chapter 7 bankruptcy; $1,738 for a Chapter 11 bankruptcy; and $313 for a Chapter 13 bankruptcy.

There can be additional costs associated with filing for bankruptcy, including hiring a bankruptcy attorney; converting a case from one chapter of bankruptcy to another (such as conversion of a Chapter 7 case to a Chapter 11 case); or filing motions, such as a motion for leave to appeal and a motion to amend a debtor’s schedule of creditors.