Navigating Between Chapter 7 and 7 for 2026

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

That analysis often determines whether Chapter 7 is safe for someone with built-up equity in Michigan property or a paid-off vehicle. In Chapter 13, exemptions still matter, however in a various method. Rather of offering non-exempt residential or commercial property, the law typically requires that unsecured lenders receive a minimum of as much through your strategy as they would have received if you filed Chapter 7 and your non-exempt properties were offered.

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A Michigan homeowner with equity above the homestead exemption may select Chapter 13, make a greater month-to-month payment for a set number of years, and still keep the house. Since the choice in between Michigan and federal exemptions can tilt the balance in between Chapter 7 and 13, this is not something to guess at.

If Chapter 7 looks risky however the client's income can support a practical Chapter 13 payment, the suggestion may shift towards Chapter 13 to protect hard-earned property. How each chapter treats your specific financial obligations often matters more than any abstract advantages and disadvantages list. Unsecured financial obligations, such as credit cards, medical expenses, payday loans, and lots of personal loans, usually receive similar end results in both chapters, but through various courses.

In Chapter 13, unsecured financial institutions frequently get a share of what you pay into the plan, which might be anywhere from a small percentage to the full quantity, and the staying balance can be discharged at the end if you complete your strategy. Guaranteed debts include residential or commercial property that functions as security, such as a home loan on a home or a lien on a vehicle.

Saving Income From 2026 Bankruptcy Garnishment

Keeping a protected property frequently includes remaining present on payments and, sometimes, signing a reaffirmation arrangement that keeps you personally accountable on that particular loan after bankruptcy. If you are far behind and can not capture up quickly, giving up the property in Chapter 7 cleans out your individual liability for any deficiency balance after the loan provider offers it.

You can spread out home mortgage or vehicle loan defaults over a three to five-year plan, which is called curing financial obligations, while likewise resuming your regular month-to-month payments. In some situations, Chapter 13 also allows a reduction of specific car loan balances to the automobile's current worth, a concept referred to as cramdown, though comprehensive guidelines use.

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Concern and nondischargeable debts, such as current income taxes, child assistance, spousal support, and the majority of student loans, stand in a separate classification. These are generally not cleaned out in Chapter 7, though the automated stay can pause some collection while the case is pending. In Chapter 13, these financial obligations are often paid completely through your strategy before unsecured financial institutions get anything.

At Hensel Law Workplace, PLLC, a detailed creditor list is mapped to these categories so you see exactly which financial obligations will be eliminated, which should be paid, and which chapter manages them more effectively. Understanding for how long each chapter lasts and what life looks like throughout the case can make the decision feel less abstract.

Soon after filing, the automatic stay typically stops garnishments, lawsuits, and the majority of collection calls. You attend a meeting of creditors, typically called the 341 conference, where the trustee asks concerns about your documentation and finances. After that, you generally wait on due dates to pass and for the court to issue a discharge, unless the trustee requires more information or is exploring non-exempt assets.

Should You Use Chapter 7 in 2026

You file the case, and the automated stay enters into impact, stopping garnishments, foreclosure sales, and a lot of collection activity. You propose a payment plan, start making monthly payments to the Chapter 13 trustee, and attend a 341 conference and, oftentimes, a confirmation hearing where the judge considers whether to authorize the plan.

Many Michigan filers are amazed by how structured however workable the daily reality can be when the strategy is reasonable. In Chapter 7, your main obligations are to be sincere, supply files, attend your conference, and finish a needed financial education course. In Chapter 13, the added obligations consist of adhering to a budget plan, making every strategy payment on time, and reporting substantial income changes.

Once you understand how each chapter works, the next action is lining that up with your goals. One core tradeoff is speed versus structure. Chapter 7 relocations much faster and usually involves no long-term payment responsibilities, which interest Michigan occupants and house owners who are current on their home loans and have primarily unsecured debts.