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Chapter 7 Bankruptcy

Sometimes circumstances beyond your control force you to endure financial losses due to a recent job loss, reduction of income, illness or injury, death, or other issues.  When this happens, it seems the stress and anxiety of how to pay the bills is overwhelming.  You were able to make it work before, but now you can’t seem to get ahead.  To make this stress worse, the bill collectors will call you with demands for payment and threaten you with garnishments, foreclosure, or repossession.  Anne VanderBroek is here to assist you.

What is Chapter 7 Bankruptcy?

Chapter 7 bankruptcy can do the following:

  1. Provide you with peace of mind and protection from collectors
  2. Stop creditor harassment and intimidation
  3. Stop garnishments of wages and state tax refunds
  4. Stop lawsuits
  5. Stop foreclosure temporarily to allow possible workouts
  6. Stop a wage levy by the IRS or Michigan Department of Treasury

Chapter 7 is the bankruptcy that most people file. It is commonly used to get rid of unsecured debts such as:

  • Bad mortgages and foreclosures
  • Certain taxes owed to the IRS or State of Michigan
  • Other debts
  • Credit card bills
  • Medical bills
  • Unsecured personal loans
  • Judgments
  • Garnishments
  • Repossession

Full disclosure and the listing of all of your bills in your bankruptcy filing is mandatory by law.  You are required to sign the bankruptcy documents under penalty of perjury and you are required to testify under oath at a Meeting of the Creditors hearing that the documents truthfully and accurately show all of your debts and all of your assets.

There are certain debts that are non-dischargeable in chapter 7 and you should be sure to discuss all of your debts with your attorney.  The following types of debts may not be dischargeable in bankruptcy.  All debts should be disclosed to your attorney prior to filing:

  • Debts owed to ex-spouses for alimony (spousal support) and child support
  • Debts due to driving under the influence
  • Debts based upon fraud or misrepresentation
  • Certain types of taxes
  • Court ordered fines
  • Most student loans
  • Purchases of luxury goods within 90 days of filing bankruptcy
  • Recent cash advances on credit cards
  • Certain other debts

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How Do You File for Bankruptcy?

While federal law does not require you to have an attorney, it is very difficult to successfully represent yourself – and unsuccessful representation is a good way to lose your belongings or not get a discharge at all. A good bankruptcy attorney can help you through the process and help you keep most, if not all, of your belongings.

There are several things that need to be done in order to file a bankruptcy.  Generally, the process for filing bankruptcy with a lawyer is as follows:

  1. Meet with an attorney and sign an employment contract
  2. Provide the required information to your attorney so that your bankruptcy petition may be prepared correctly
  3. Do not forget to list all of your creditors
  4. Pay the required attorney fees and filing fees to get the case filed
  5. Participate in a required pre-filing credit counseling session prior to the bankruptcy being filed – and provide your attorney with a certificate of completion
  6. Review and sign your bankruptcy petition for filing (Your bankruptcy cannot be filed without your signatures)
  7. The bankruptcy documents are electronically filed with the United States Bankruptcy Court and you are assigned a case number, a trustee, and a date for the Meeting of the Creditors hearing.
    1. The Chapter 7 Trustee assigned to you is responsible for reviewing your bankruptcy documents and conducting your bankruptcy Meeting of the Creditors hearing to determine whether there are assets available pay your creditors.
  8. Immediately upon the case being filed, an automatic stay under Section 362 of the Bankruptcy Code goes into effect that prohibits your creditors from continuing to harass you or attempt to collect money or garnish wages from you.
  9. You should stay current with all of the debts you intend to keep – your house, vehicle, retirement loans.
  10. Attend the Meeting of the Creditors hearing, usually scheduled around 30 days after your case is filed.
  11. Complete the required Financial Management Course (online) for people who file bankruptcy
  12. Execute any reaffirmation agreement needing to be filed
  13. In most cases, the discharge order is granted 90 to 120 days after the Meeting of the Creditors hearing
  14. The Court issues an Order closing the case about 90 days after the Discharge Order is granted.

What NOT to do if filing bankruptcy

  1. Not consulting with an experienced bankruptcy attorney prior to filing
  2. Filing bankruptcy when you don’t need to and using your bankruptcy discharge too early
  3. Selling assets that you would not lose if you filed bankruptcy
  4. Refinancing your house so you can’t afford it in a few years
  5. Taking a loan against your 401(k) or retirement account
  6. Using your credit cards for cash advances or balance transfers within 90 days of needing to file bankruptcy
  7. Obtaining payday loans
  8. Hiring a petition preparer rather than an experienced bankruptcy attorney to file your bankruptcy

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Will Filing Bankruptcy Stop a Wage Garnishment?

The filing of a bankruptcy in Michigan will stop a wage garnishment even if it is a chapter 7 or chapter 13 bankruptcy.  Once the bankruptcy petition is filed with the bankruptcy court, the bankruptcy code gives you an automatic stay of all civil collection matters against you.  A criminal case or current child support proceedings will not be stopped in most cases.  The following is the typical scenario:

You are contacted by your payroll department that a wage garnishment will take effect next payday and you will lose 25% of your net check.  There is no way that you can pay your monthly rent or mortgage, utilities, or other living obligations while losing that much of your check.  You contact a bankruptcy attorney and decide to file bankruptcy.  Your payroll is cut by your employer on Tuesday and payday is Friday.  Will the wage garnishment be stopped in time?  You will need to have your case filed before Tuesday to even have a chance at stopping the wage garnishment.  Once the case is filed, your attorney can send the appropriate paperwork to your payroll department to stop the wage garnishment and get you your entire paycheck. 

Can’t file fast enough to stop the garnishment?  In some cases, your bankruptcy attorney can recover all or part of the wages that were garnished.  In order for this to happen, you and your attorney will need to work together to get the required results.

If you are facing a current or pending wage garnishment in Michigan, contact VanderBroek Law PLLC for a free consultation to get your paycheck back!

Will I lose my House and Car if I file Bankruptcy?

In most cases, you will not lose your house or vehicle as long as you remain current with the payments to the creditor.  In Michigan, a person filing bankruptcy must show all of his or her personal property and its value.  Our state opted in to claiming federal exemptions and debtors filing bankruptcy may choose between using the Michigan or Federal exemptions.  An experienced bankruptcy attorney can explain the differences between the available exemptions and help you keep most or all of your property.

If you have not lived in Michigan during the majority of the 2 years prior to filing bankruptcy, you may have to use the exemptions allowed by the state where you used to reside or the federal exemptions.  It is extremely important that you tell your attorney every address where you have lived in the last 3 years.

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Will I lose my tax refund if I file bankruptcy?

In a chapter 7 bankruptcy, your tax refund may be taken from you if you are not careful. It is extremely important that you consult with an experienced bankruptcy attorney about this matter.

Under Michigan law, the bankruptcy trustee cannot take your earned income credit (EIC) for the benefit of your creditors, but it must be properly claimed exempt in your bankruptcy schedules. The trustee can take your additional child tax credit and the federal and state income taxes that your employer deduced from your paycheck.

The month you file for bankruptcy will determine the level of interest a bankruptcy trustee has in taking your tax refund.