Choosing Chapter 13 Vs Chapter 13 in 2026

In Chapter 7, the trustee takes a look at your possessions and compares their equity to the exemptions you claim. Equity is the worth of the home minus what you owe on it. If your equity in a home, vehicle, or other property is fully covered by exemptions, the trustee typically leaves that property alone.

That analysis typically figures out whether Chapter 7 is safe for somebody with built-up equity in Michigan property or a paid-off lorry. In Chapter 13, exemptions still matter, however in a different way. Instead of selling non-exempt property, the law normally requires that unsecured financial institutions receive a minimum of as much through your strategy as they would have received if you filed Chapter 7 and your non-exempt assets were offered.

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A Michigan property owner with equity above the homestead exemption may choose Chapter 13, make a higher month-to-month payment for a set number of years, and still keep the house. Since the option in between Michigan and federal exemptions can tilt the balance in between Chapter 7 and 13, this is not something to rate.

If Chapter 7 looks risky but the client's earnings can support a reasonable Chapter 13 payment, the recommendation might move toward Chapter 13 to protect hard-earned property. How each chapter treats your particular debts often matters more than any abstract benefits and drawbacks list. Unsecured financial obligations, such as credit cards, medical expenses, payday loans, and numerous personal loans, usually get comparable end results in both chapters, but through various courses.

In Chapter 13, unsecured creditors frequently receive a share of what you pay into the strategy, which might be anywhere from a little portion to the complete quantity, and the remaining balance can be discharged at the end if you finish your plan. Guaranteed financial obligations include home that serves as collateral, such as a mortgage on a home or a lien on a cars and truck.

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Keeping a secured possession typically includes remaining present on payments and, in many cases, signing a reaffirmation arrangement that keeps you personally liable on that particular loan after bankruptcy. If you are far behind and can not catch up quickly, giving up the home in Chapter 7 erases your personal liability for any deficiency balance after the lender sells it.

You can spread out home loan or auto loan defaults over a three to five-year plan, which is called treating financial obligations, while also resuming your routine monthly payments. In some situations, Chapter 13 likewise allows a reduction of particular lorry loan balances to the car's current worth, an idea called cramdown, though comprehensive guidelines use.

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Top priority and nondischargeable financial obligations, such as current income taxes, child support, alimony, and most student loans, stand in a separate classification. These are generally not eliminated in Chapter 7, though the automatic stay can pause some collection while the case is pending. In Chapter 13, these debts are often paid completely through your strategy before unsecured creditors get anything.

At Hensel Law Office, PLLC, an in-depth creditor list is mapped to these categories so you see precisely which debts will be eliminated, which must be paid, and which chapter handles them better. Understanding how long each chapter lasts and what life appears like throughout the case can make the decision feel less abstract.

Shortly after filing, the automated stay generally stops garnishments, suits, and the majority of collection calls. You attend a meeting of creditors, frequently called the 341 meeting, where the trustee asks questions about your paperwork and finances. After that, you primarily wait on deadlines to pass and for the court to provide a discharge, unless the trustee needs more details or is exploring non-exempt possessions.

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You file the case, and the automated stay goes into result, stopping garnishments, foreclosure sales, and the majority of collection activity. You propose a repayment strategy, begin making regular monthly payments to the Chapter 13 trustee, and go to a 341 meeting and, oftentimes, a confirmation hearing where the judge thinks about whether to authorize the strategy.

Many Michigan filers are surprised by how structured however workable the day-to-day reality can be when the strategy is sensible. In Chapter 7, your main obligations are to be honest, offer documents, attend your meeting, and complete a needed monetary education course. In Chapter 13, the included obligations include staying with a spending plan, making every strategy payment on time, and reporting significant income changes.

As soon as you comprehend how each chapter works, the next step is lining that up with your objectives. One core tradeoff is speed versus structure. Chapter 7 moves quicker and usually involves no long-term payment commitments, which appeals to Michigan renters and homeowners who are present on their home mortgages and have primarily unsecured financial obligations.