Chapter 7 Bankruptcy, also referred to as a “liquidation” bankruptcy, is the kind where the client debtor files to eliminate all, or almost all of his debt. “Almost all” because certain debts like child support, alimony and student loans (unless an undue hardship can be established) cannot be eliminated in bankruptcy. A client can only be a debtor under Chapter 7 once every eight years from the date of filing. Our Michigan Chapter 7 bankruptcy lawyer can advise you on whether this option is right for you. If it is the right option for you, Joseph L. Grima & Associates can help you eliminate your debt in a Chapter 7 Bankruptcy.Federal Exemption Scheme v. Michigan Exemption Scheme to Protect The Client's Assets
One of the most important decisions to be made prior to filing a Chapter 7 Bankruptcy is what “exemption scheme”, Federal or State, provides the client’s assets with the most protection. In Chapter 7 Bankruptcy, the client debtor is allowed to protect certain assets deemed by Congress as necessary for a fresh start. These assets can be protected under either the “Federal exemption scheme” or the “Michigan exemption scheme”. A client cannot simultaneously take both the Federal exemption scheme and the Michigan exemption scheme in a Chapter 7 Bankruptcy. He can take either the Federal exemption scheme, or the Michigan exemption scheme, but not both. Most times, the Federal exemption scheme is more advantageous to the client than the Michigan exemption scheme, but not always.
The best example of whether it is better for the client to use the Federal exemption scheme or Michigan exemption scheme is when the client has significant equity in his personal residence.
Under the Federal exemption scheme a client can protect up to $25,150 of equity in his homestead (defined as real estate that he lives in). Under the Michigan exemption scheme, a client can protect up to $38,225 of equity in the homestead, which amount increases to $57,350 if the client is 65 years of age or older at the time of filing bankruptcy. This would lead one to believe that the Michigan exemption scheme would always be better for the client than the Federal exemption scheme. However, this is not always the case.
Unless there is more equity in the homestead than what can be protected under the Federal exemption scheme ($25,150), it would be more advantageous for the client to use the Federal exemption scheme as it provides protection for other assets such as cash, bank accounts and tax refunds. Protection for cash, bank accounts and tax refunds does not exist under the Michigan exemption scheme. Under the Michigan exemption scheme, the debtor cannot protect any cash, bank accounts or income tax refunds.
If a client has more than $25,150 of equity in his homestead, he would be better off taking the Michigan exemption scheme as this would allow him to protect up to between $38,225 and $57,350 of equity in the homestead (depending on his age). However, under such a scenario, the client would then have to be prepared to surrender any cash, any money in his bank accounts and any potential tax refunds to the bankruptcy trustee. In electing to take the Michigan exemption scheme, the strategy would be that the client would be able to protect more equity in his homestead than what he would lose in other assets to the Chapter 7 Trustee. If the client has $25,150 or less of equity in his homestead, electing to take the Federal exemption scheme should allow him to be able to protect his cash, bank accounts and tax refunds. A Chapter 7 bankruptcy attorney in Michigan can help you explore whether the federal or State exemptions would be better suited to your situation.Procedure in Chapter 7
A Chapter 7 Bankruptcy for the most part lasts approximately 90 days from filing. The client meets with his attorney. Once it is determined that the client qualifies for Chapter 7 Bankruptcy and a decision is made as to whether to take the Federal exemption scheme or the State exemption scheme, the attorney prepares a “Petition” and a set of “schedules” based on information provided by the client. The attorney then files the Chapter 7. The client, together with his attorney, usually attends only one hearing, called the “First Meeting of Creditors”, held approximately 30 days after filing. The bankruptcy is usually discharged 60 days after attending the First Meeting of Creditors. Even though this hearing is referred to as the “First Meeting of Creditors”, creditors very rarely attend.Discharging Debts in Chapter 7
The whole point of filing a Chapter 7 Bankruptcy is to “discharge” (eliminate) debt. The majority of a client’s debts, such as credit card debt, personal loans and medical bills are automatically discharged when the bankruptcy is over. However, if a lender believes that the client committed some kind of fraud to obtain the loan, then the lender could challenge the dischargeability of the loan. The lender would do so by filing a lawsuit in the bankruptcy against the client, called an “adversary complaint” seeking to make the debt non-dischargeable.
Other debt, such as student loans, are automatically excepted from discharge unless the client takes legal action during the course of the bankruptcy to make them dischargeable. For example, if the client believes that it would be an “undue hardship” for him to be forced to keep the student loan, he could file an “adversary complaint” and try to make the student loan dischargeable (an extremely hard but not impossible accomplishment).
A Michigan Chapter 7 bankruptcy attorney can represent a debtor in a non-dischargeability action if needed. Non-dischargeability actions by creditors in Chapter 7 are not all that common and are rarely successful when filed. The great majority of Chapter 7 Bankruptcies filed usually sail through without any type of non-dischargeability challenge, allowing the client to obtain his discharge with the minimum of stress.Conclusion
Joseph L. Grima always meets with every potential Chapter 7 client. Consultations are always for free, whether he is retained or not. During the consultation, he very carefully makes sure that the client is not undervaluing his assets, (as this could lead to adverse consequences), looks for any potential pitfalls, advises the client as to which would be the best exemption scheme to take, as well as how to rebuild credit once the Chapter 7 is discharged. Chapter 7 attorney fees are fixed, established up front in a retainer agreement signed by both the client and the attorney, with no hidden additional fees. The client can always pay the attorney fees under a payment plan. The Bankruptcy Court will give the debtor up to 120 days AFTER filing the bankruptcy to pay the filing fee, currently $335. Call Joseph L. Grima & Associates today at (800) 603-3333 to discuss your next steps with a Chapter 7 bankruptcy lawyer in Michigan.