Comparing Chapter 7 Vs Chapter 7 in 2026

In Chapter 7, the trustee looks at your properties and compares their equity to the exemptions you declare. Equity is the value of the property minus what you owe on it. If your equity in a home, vehicle, or other property is totally covered by exemptions, the trustee generally leaves that possession alone.

That analysis often figures out whether Chapter 7 is safe for someone with built-up equity in Michigan genuine estate or a paid-off car. In Chapter 13, exemptions still matter, however in a different way. Rather of selling non-exempt property, the law normally needs that unsecured lenders receive at least as much through your strategy as they would have received if you submitted Chapter 7 and your non-exempt assets were offered.

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For example, a Michigan homeowner with equity above the homestead exemption may pick Chapter 13, make a greater monthly payment for a set number of years, and still keep your house. Since the option between Michigan and federal exemptions can tilt the balance in between Chapter 7 and 13, this is not something to think at.

If Chapter 7 looks dangerous but the client's income can support a reasonable Chapter 13 payment, the suggestion may move towards Chapter 13 to safeguard hard-earned residential or commercial property. How each chapter treats your specific financial obligations frequently matters more than any abstract pros and cons list. Unsecured debts, such as charge card, medical bills, payday loans, and lots of individual loans, generally get comparable outcome in both chapters, but through different courses.

In Chapter 13, unsecured lenders often get a share of what you pay into the strategy, which might be anywhere from a small percentage to the complete amount, and the remaining balance can be discharged at the end if you complete your plan. Guaranteed financial obligations include home that works as security, such as a mortgage on a home or a lien on a car.

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Keeping a protected property frequently includes remaining present on payments and, in many cases, signing a reaffirmation contract that keeps you personally responsible on that specific loan after bankruptcy. If you are far behind and can not capture up rapidly, surrendering the residential or commercial property in Chapter 7 erases your personal liability for any deficiency balance after the lender offers it.

You can expand mortgage or cars and truck loan arrears over a 3 to five-year plan, which is called treating defaults, while likewise resuming your regular monthly payments. In some situations, Chapter 13 likewise enables a decrease of specific car loan balances to the cars and truck's current value, a concept understood as cramdown, though comprehensive rules use.

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Priority and nondischargeable financial obligations, such as recent income taxes, kid support, spousal support, and many student loans, stand in a different category. These are typically not eliminated in Chapter 7, though the automatic stay can stop briefly some collection while the case is pending. In Chapter 13, these financial obligations are typically paid completely through your strategy before unsecured financial institutions get anything.

At Hensel Law Workplace, PLLC, an in-depth creditor list is mapped to these categories so you see precisely which debts will be eliminated, which should be paid, and which chapter handles them better. Understanding the length of time each chapter lasts and what every day life appears like throughout the case can decide feel less abstract.

Shortly after filing, the automatic stay usually stops garnishments, suits, and most collection calls. You go to a conference of creditors, typically called the 341 conference, where the trustee asks concerns about your documents and financial resources. After that, you mainly await due dates to pass and for the court to issue a discharge, unless the trustee requires more details or is exploring non-exempt properties.

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You file the case, and the automated stay goes into effect, stopping garnishments, foreclosure sales, and many collection activity. You propose a payment plan, begin making month-to-month payments to the Chapter 13 trustee, and participate in a 341 meeting and, in lots of cases, a confirmation hearing where the judge thinks about whether to authorize the plan.

Lots of Michigan filers are shocked by how structured but workable the everyday truth can be when the plan is realistic. In Chapter 7, your primary duties are to be honest, provide files, attend your conference, and complete a required financial education course. In Chapter 13, the added duties include sticking to a budget, making every strategy payment on time, and reporting substantial earnings modifications.

As soon as you comprehend how each chapter works, the next action is lining that up with your objectives. One core tradeoff is speed versus structure. Chapter 7 relocations faster and usually includes no long-lasting payment obligations, which appeals to Michigan occupants and property owners who are current on their home loans and have mainly unsecured financial obligations.