The process of bankruptcy allows citizens of the United States that are
burdened with excessive debts to get relief from those debts and get a FRESH START
Through debt relief a debtor (the person that owes the money) can get several
forms of relief:
- most suits are stayed
- most lawsuits that the debtor is involved in are stopped
- most collection efforts are stopped
- most garnishments stop
- most all efforts to collect on debts are stopped*
- excess debts are discharged
- immediate effect, in most cases
These are general ideas of what a debt relief bankruptcy can do for you.
CHANGES IN THE LAW,
EFFECTIVE APRIL 1, 2014
A means test has been designed
to force those debtors who have the ability to pay some of their debts into
Chapter 13 as opposed to liquidating their debt under Chapter 7 and wiping the
slate clean. The Act eliminates the presumption that, without a finding of
substantial abuse, a debtor is entitled to relief under Chapter 7.
Instead, a debtor's Chapter 7 case will be dismissed or, with the debtor's
consent, converted to a Chapter 13 upon a finding of abuse. The Act lowers
the "substantial abuse" standard for dismissal or conversion to one of simple
abuse. Whether abuse is presumed depends on the outcome of the means test.
This test is complicated, but in a nutshell, once the debtor's current monthly
income (CMI) is determined and reduced by all of the allowances, actual monthly
expenses, and secured and priority claimed deductions, the number resulting from
those calculations is multiplied by 60 months. Abuse is presumed if that
number is not the lesser of 25% of the debtor's non-priority unsecured claims or
$7,475.00, whichever is greater, or $12,475.00. The debtor will be
required to show the calculations to determine whether a presumption of abuse
arises. (Sec. 707 (b)(2)(C)). The presumption of abuse may
only be rebutted with detailed documentation of "special circumstances"
requiring additional expenses or adjustment of current monthly total income for
which there is no reasonable alternative. (Sec. 707(b)(2)(B) (ii)).
The United States Trustee must review all
materials filed by Chapter 7 debtors, and not later that ten days after the
meeting of creditors, file a statement as to whether the presumption of abuse is
triggered. If the debtor has income in excess of the of the median income,
the United States Trustee must either file a motion to dismiss or convert the
case or file a statement setting forth the reasons why the motion is not
appropriate, within 30 days of the filing of the notice.
1. Effective October 17, 2005,
no individual may be a debtor under Title 11 unless, within 180 days prior to
filing the petition, the debtor has received an individual or group briefing
from an approved non-profit entity that outlines the opportunities for credit
counseling and assists the debtor in performing a personal budget analysis.
Counseling can be individual, group, telephone or even possibly over the
2. Debtors must file a certificate from
the budget and credit counseling agency that describes the services provided to
the debtor and the debtor must file a copy of the debt repayment plan, if a
repayment plan was created prior to filing. The debtor may file a sworn
statement that states the exigent circumstances that prevented the filing of the
certificate. (Sec. 109(h)(l). However the debtor would need to
attend counseling within 30 days after filing the petition.
3. Debtors must file a statement
showing any anticipated increase in income or expenditures anticipated within
the year after filing. (Sec. 521(a)(1)(B)(iv)).
4. Debtor must deliver to the trustee a
copy of the debtor's latest tax return or a transcript prior to the
meeting of the creditors or the debtors case "shall" be dismissed. (Sec.
521 (e)(2)(A) ).
5. Debtor must provide a copy of the
tax return or transcript to any creditor that requests a copy at the same time
the debtor provides such to the trustee. (Sec. 521 (e) (2) (A) (ii) )
6. Debtor is under a continuing duty to
provide tax returns during the case, from commencement to termination; the case
may be dismissed or converted for failure to comply.
7. Debtors must choose their intent to
surrender, reaffirm or redeem a debt secured by property of the estate within 30
days after the first date set for the meeting of creditors.
8. In the case of personal property
secured by purchase money security interest, within 45 days after the first
meeting of creditors, debtors must reaffirm, redeem, or surrender the property.
Failure to do so will result in an automatic lifting of the stay without
creditor motion. (Sec. 521 (a)(6)).
9. A debtor can be denied a discharge
if the debtor fails to complete an educational course concerning personal
financial management, (Sec. 727(a)(11)) unless the court determines
that the debtor is unable to complete this requirement because of incapacity,
disability, or active military service in a combat zone.
Non-Dischargeable Debts Expanded
for money, credit, etc. , obtained through fraud or false statement in writing.
2. Debts incurred within 90 days of
filing that aggregate at least $600.00 for luxury goods or services and cash
advanced aggregating more than $750.00 within 70 days. (Sec. 523(a)(2)).
3. The exception to discharge for
student loans is expanded to encompass all student loans, as defined by the IRC
4. If an individual is drunk or
impaired due to drugs or any substance, and causes death or personal injury by
operating a motor vehicle, vessel or aircraft, then debts relating to that
incident are non-dischargeable. (Sec. 523(a)(9)).
5. Domestic support obligations are
non-dischargeable. Sec. 523(a)(5) and 523(a)(15)).
6. Debts incurred to pay state and
local taxes. Sec. 523(a)(14)).
7. Debts incurred to pay fines and
8. Debts from homeowner association,
condominium and cooperative dues.
Sec. 527. Disclosures
`(a) A debt relief agency providing bankruptcy
assistance to an assisted person shall provide--
`(1) the written notice required under
section 342(b)(1); and
`(2) to the extent not covered in the
written notice described in paragraph (1), and not later than 3 business
days after the first date on which a debt relief agency first offers to
provide any bankruptcy assistance services to an assisted person, a clear
and conspicuous written notice advising assisted persons that--
`(A) all information that the assisted
person is required to provide with a petition and thereafter during a
case under this title is required to be complete, accurate, and
`(B) all assets and all liabilities
are required to be completely and accurately disclosed in the
documents filed to commence the case, and the replacement value of
each asset as defined in section 506 must be stated in those documents
where requested after reasonable inquiry to establish such value;
`(C) current monthly income, the
amounts specified in section 707(b)(2), and, in a case under chapter
13 of this title, disposable income (determined in accordance with
section 707(b)(2)), are required to be stated after reasonable
`(D) information that an assisted
person provides during their case may be audited pursuant to this
title, and that failure to provide such information may result in
dismissal of the case under this title or other sanction, including a
`(b) A debt relief agency providing bankruptcy
assistance to an assisted person shall provide each assisted person at the
same time as the notices required under subsection (a)(1) the following
statement, to the extent applicable, or one substantially similar. The
statement shall be clear and conspicuous and shall be in a single document
separate from other documents or notices provided to the assisted person:
`IMPORTANT INFORMATION ABOUT BANKRUPTCY
ASSISTANCE SERVICES FROM AN ATTORNEY OR BANKRUPTCY PETITION PREPARER.
`If you decide to seek bankruptcy relief, you
can represent yourself, you can hire an attorney to represent you, or you can
get help in some localities from a bankruptcy petition preparer who is not an
attorney. THE LAW REQUIRES AN ATTORNEY OR BANKRUPTCY PETITION PREPARER TO GIVE
YOU A WRITTEN CONTRACT SPECIFYING WHAT THE ATTORNEY OR BANKRUPTCY PETITION
PREPARER WILL DO FOR YOU AND HOW MUCH IT WILL COST. Ask to see the contract
before you hire anyone.
`The following information helps you
understand what must be done in a routine bankruptcy case to help you evaluate
how much service you need. Although bankruptcy can be complex, many cases are
`Before filing a bankruptcy case, either you
or your attorney should analyze your eligibility for different forms of debt
relief available under the Bankruptcy Code and which form of relief is most
likely to be beneficial for you. Be sure you understand the relief you can
obtain and its limitations. To file a bankruptcy case, documents called a
Petition, Schedules and Statement of Financial Affairs, as well as in some
cases a Statement of Intention need to be prepared correctly and filed with
the bankruptcy court. You will have to pay a filing fee to the bankruptcy
court. Once your case starts, you will have to attend the required first
meeting of creditors where you may be questioned by a court official called a
`trustee' and by creditors.
`If you choose to file a chapter 7 case, you
may be asked by a creditor to reaffirm a debt. You may want help deciding
whether to do so. A creditor is not permitted to coerce you into reaffirming
`If you choose to file a chapter 13 case in
which you repay your creditors what you can afford over 3 to 5 years, you may
also want help with preparing your chapter 13 plan and with the confirmation
hearing on your plan which will be before a bankruptcy judge.
`If you select another type of relief under
the Bankruptcy Code other than chapter 7 or chapter 13, you will want to find
out what should be done from someone familiar with that type of relief.
`Your bankruptcy case may also involve
litigation. You are generally permitted to represent yourself in litigation in
bankruptcy court, but only attorneys, not bankruptcy petition preparers, can
give you legal advice.'.
`(c) Except to the extent the debt relief
agency provides the required information itself after reasonably diligent
inquiry of the assisted person or others so as to obtain such information
reasonably accurately for inclusion on the petition, schedules or statement of
financial affairs, a debt relief agency providing bankruptcy assistance to an
assisted person, to the extent permitted by non-bankruptcy law, shall provide
each assisted person at the time required for the notice required under
subsection (a)(1) reasonably sufficient information (which shall be provided
in a clear and conspicuous writing) to the assisted person on how to provide
all the information the assisted person is required to provide under this
title pursuant to section 521, including--
`(1) how to value assets at replacement
value, determine current monthly income, the amounts specified in section
707(b)(2) and, in a chapter 13 case, how to determine disposable income in
accordance with section 707(b)(2) and related calculations;
`(2) how to complete the list of
creditors, including how to determine what amount is owed and what address
for the creditor should be shown; and
`(3) how to determine what property is
exempt and how to value exempt property at replacement value as defined in
`(d) A debt relief agency shall maintain a
copy of the notices required under subsection (a) of this section for 2 years
after the date on which the notice is given the assisted person.'.
(b) CONFORMING AMENDMENT- The table of
sections for chapter 5 of title 11, United States Code, as amended by section
227, is amended by inserting after the item relating to section 526 the
Requirements for debt relief agencies
`(a) A debt relief agency shall--
`(1) not later than 5 business days after
the first date on which such agency provides any bankruptcy assistance
services to an assisted person, but prior to such assisted person's
petition under this title being filed, execute a written contract with
such assisted person that explains clearly and conspicuously--
`(A) the services such agency will
provide to such assisted person; and
`(B) the fees or charges for such
services, and the terms of payment;
`(2) provide the assisted person with a
copy of the fully executed and completed contract;
`(3) clearly and conspicuously disclose in
any advertisement of bankruptcy assistance services or of the benefits of
bankruptcy directed to the general public (whether in general media,
seminars or specific mailings, telephonic or electronic messages, or
otherwise) that the services or benefits are with respect to bankruptcy
relief under this title; and
`(4) clearly and conspicuously use the
following statement in such advertisement: `We are a debt relief agency.
We help people file for bankruptcy relief under the Bankruptcy Code.' or a
substantially similar statement.
`(b)(1) An advertisement of bankruptcy
assistance services or of the benefits of bankruptcy directed to the general
`(A) descriptions of bankruptcy assistance
in connection with a chapter 13 plan whether or not chapter 13 is
specifically mentioned in such advertisement; and
`(B) statements such as `federally
supervised repayment plan' or `Federal debt restructuring help' or other
similar statements that could lead a reasonable consumer to believe that
debt counseling was being offered when in fact the services were directed
to providing bankruptcy assistance with a chapter 13 plan or other form of
bankruptcy relief under this title.
`(2) An advertisement, directed to the general
public, indicating that the debt relief agency provides assistance with
respect to credit defaults, mortgage foreclosures, eviction proceedings,
excessive debt, debt collection pressure, or inability to pay any consumer
`(A) disclose clearly and conspicuously in
such advertisement that the assistance may involve bankruptcy relief under
this title; and
`(B) include the following statement: `We
are a debt relief agency. We help people file for bankruptcy relief under
the Bankruptcy Code.' or a substantially similar statement.'
- Michigan Exemptions you are entitled to:
Every three years the Michigan state
treasurer adjusts the exemption dollar amounts to take into account
inflation. The latest adjustment went into effect on April 1, 2014.
The following exemption amounts will apply to your case:
- Household goods, furniture, utensils,
books, appliance and jewelry, up to $600.00 per item, but not to exceed
a total of $3,775 for all items -- ( The previous amounts were $550 and
- Pew in a place of worship, up to $650
--(previously it was $600),
- Crops, farm animals, and feed for the
animals up to $2,525 total--(previously it was $2,350),
- Pets, up to $650--(previously it was
- Motor vehicle, up to
$3,475--(previously it was $3,250),
- Computer and accessories, up to
$650--(previously it was $600),
- Tools of the trade, up to
$2,525--(previously it was $2,350),Homestead exemption to
$37,775--(previously it was $35,300a0 or to $56,650 if you are 65 years
old or disabled--(previously it was $52,925.
Property described in section 1 of
1927 PA 212, M.C.L.A. 557.151, or real property, held jointly by a husband and
wife as a tenancy by the entirety is exempt, except that this exemption does not apply
with regard to a claim based on a joint debt of the husband and wife.
See also: In Re: Raynard, U.S. 6th Circuit Court of Appeals.
When you file for
bankruptcy, you are permitted to use Michigan state laws known as exemptions
to protect your personal property. In a Chapter 7 bankruptcy the trustee
may sell your property if it is worth more than what the exemption amount is.
In a Chapter 13 bankruptcy, you are permitted to keep your personal
property if it is worth more than the exemption amount , but you will have to
pay back your creditors the portion that is not exempt.
Choosing Between State and Federal Exemptions
Not only does every state
have its own bankruptcy exemption laws, there are federal exemption laws, as
well. Michigan residents are permitted to use either state or federal
How do I start?