Category Archives: Benefits of Bankruptcy

What kinds of collection actions does bankruptcy stop?

Bankruptcy stops any sort of collection action that you can think of, except for criminal trials and child support matters. The list is too long to spell out in full, but here are some examples: Foreclosures, evictions, garnishments, lawsuits, state or federal tax collections, tax liens or penalties, harassing letters and phone calls, and anything else that might in any way be interpreted as an attempt to collect on a civil debt. Depending on your exact situation, some of those debts may still have to be dealt with after filing, but at least you will now have some control over the process. There are certain debts that can almost never be discharged, such as criminal fines, certain taxes, and child support. But even those debts can be spread out over time in a Chapter 13 plan.  Call Firebaugh & Andrews for a free consultation 734-722-299

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What is Michigan chapter 11, and who may qualify?

Chapter 11 is frequently known as the reorganization chapter of the bankruptcy code because it allows a debtor to reorganize financial obligations while retaining assets, generally through the sale of certain assets to pay down debt and refinance existing debts. Chapter 11 is available to both individuals and businesses.

The following is a brief description of the relief afforded to individuals and businesses through Chapter 11, for more information please call Firebaugh & Andrews for a few evaluation at 734-722-2999

Chapter 11 Overview

Filing a Chapter 11 petition grants a debtor what is known as an automatic stay from the enforcement actions of creditors. This precludes creditors from continuing collection efforts, from bringing a lawsuit, or from filing liens against property or foreclosing on property.

In Chapter 11, a debtor generally remains in control of their estate. A trustee may be appointed for cause (i.e., fraud, dishonesty, incompetence or gross mismanagement) or if such appointment is in the best interest of creditors; however, this relief is relatively rare. A Chapter 11 debtor-in-possession generally has the same rights as a trustee would have if appointed, thus any reference to rights or authority of a debtor would apply to a trustee, if appointed, as well.

Exclusive Time Periods

A Chapter 11 debtor is granted the exclusive right to file a plan of reorganization for a period of 120 days and to solicit a plan of reorganization for a period of 180 days. A debtor can seek an extension of these “exclusive periods” for cause. Otherwise, once an exclusive period lapses, any creditor or party in interest can file a plan of reorganization for the debtor.

Similarly, if a creditor or party in interest can show that a debtor is mismanaging the estate, not negotiating in good faith with creditors or using the exclusive period as leverage in negotiation with creditors, they can seek to terminate exclusivity to allow non-debtors to file a competing plan. Competing plans are rare; however, the threat of a competing plan is often sufficient to keep negotiations between a debtor and its creditors active.

Committee of Unsecured Creditors

Another tool available to balance creditors’ powers of negotiation is an official committee of unsecured creditors. The purpose is similar to that of a class action lawsuit – while each individual creditor may not have a large enough claim to justify retaining counsel, aggregate creditors’ claims can be quite large and their collective voice could benefit from legal representation. The creditors’ committee is made up of three or more volunteering unsecured creditors selected by the United States Trustee. The creditors’ committee can retain legal counsel and financial advisors to assist in the case, with the cost of such professionals carried by the debtor.

A creditors’ committee is not formed in every case and is usually limited to large, complex or highly contested Chapter 11 cases.

The Reorganization Plan

A Chapter 11 plan of reorganization provides debtors with important tools for rearranging financial affairs. For example, a plan may allow a debtor to reject certain contracts or leases with a cap on damages. This is helpful where a debtor has signed an expensive, long-term contract that is no longer beneficial.

A debtor may also refinance existing loans including increasing the time in which it must be repaid (i.e., stretching a two-year loan to five years), decreasing the interest rate if interest rates have declined since the loan was entered into, or changing/removing other arduous terms. Through Chapter 11, as with other bankruptcy chapters, a debtor can also sell an asset free and clear of all liens either through a plan or through what is a called a 363 sale. The ability to sell an asset free and clear of liens can garner a greater sale price as purchasers are assured that the property is unencumbered and the purchaser is subject to less liability.

Regardless of who files a plan of reorganization, certain creditors are entitled to vote to approve or disapprove a plan. Only those creditors that are determined to be partially impaired (e.g., reduced payments or payments over time) are entitled to vote on a plan. Creditors that are unimpaired are deemed to accept the plan and creditors that are fully impaired (i.e., will not recover) are deemed to reject the plan. However, even if they are not allowed to vote on a plan, a creditor still has the right to object to its treatment under the plan. In order for a plan to be accepted, two-thirds of creditors in number and fifty percent of creditors in dollars must vote in favor of the plan.

A Chapter 11 debtor can cramdown a plan over the negative vote of creditors in certain circumstances. Even if creditors vote to accept a plan, the bankruptcy court will review the plan and ensure that it meets statutory requirements before the plan can be confirmed. If a debtor is unable to get a plan of reorganization confirmed, the case may be converted to a Chapter 7 filing or dismissed. After a plan is confirmed, the debtor’s bankruptcy is essentially over. However, the bankruptcy court generally retains jurisdiction over the case at least until the last plan payment is made.

Chapter 11 for Individuals

Given the complexity and cost of Chapter 11, it is most often used by businesses. On the other hand, Chapter 11 may be the only option available to an individual debtor with income greater than that allowed by the Chapter 7 means test, and secured debt in excess of that allowed by Chapter 13. This is often the case where an individual owns large amounts of real property, but does not have sufficient liquidity to pay his or her debts as they come due.

The major benefit of Chapter 11 for individuals is the ability to keep assets beyond just the statutory exemptions available under Chapter 7 and Chapter 13. Given that Chapter 11 individual cases are relatively infrequent and the language of the chapter is better applied to corporations, the law applied to Chapter 11 consumer cases has been largely unsettled. If you are considering an individual Chapter 11 you would be best served to give us a call for a free consultation at 734-722-2999 Firebaugh & Andrews

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When to use Emergency Bankruptcy Filings.

If you are facing a financial crisis — such as a foreclosure, auto repossession, garnishment or court judgment — you may not have a lot of time to protect yourself from devastating consequences. An emergency bankruptcy filing may solve the immediate problem and give you the breathing room you need.

Prevent Foreclosure, Repossessions And Garnishments In Michigan

When you file bankruptcy, you are protected by the “automatic stay.” The automatic stay requires creditors to put an immediate stop to all debt collection efforts. The following are examples of creditor actions that can be stopped when you file bankruptcy:

  • Home foreclosure: Filing bankruptcy will stop the foreclosure and give you time to decide whether to keep the home or give it up.
  • Auto repossession: Filing bankruptcy will stop a repossession. As long as the car has not been sold, you can get it back.
  • Harassing phone calls: Once you file bankruptcy, creditors cannot call you or your employer.
  • Lawsuit judgments: Filing bankruptcy puts an immediate stop to collection of lawsuit judgments.
  • Wage garnishments: Filing bankruptcy will stop the garnishment. If you act soon enough, it may allow you to get garnished wages back.
  • Bank account garnishments: Filing bankruptcy will stop the garnishment. If you act soon enough, it may allow you to get your money back.

Call Firebaugh and Andrews we handle emergency bankruptcy filings in Michigan, call us today for your free consultation. 734-722-2999

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Advantages & Disadvantages to a Michigan Chapter 13 payment plan:

Advantages to a Michigan Chapter 13 payment plan:

  1. If you choose and you can afford the payment plan, you can keep all your property, exempt and non-exempt.
  2. While debts are not canceled as in a Chapter 7 discharge they can be reduced under a Chapter 13 payment plan.
  3. You have immediate protection against creditor’s collection efforts and wage garnishment.
  4. More debts are considered to be dischargeable (including debt you incurred on the basis of fraud and credit card charges for luxury items immediately prior to filing).
  5. If the Chapter 13 plan provides for full payment, any co-signers are immune from the creditor’s efforts.
  6. You have protection against foreclosure on your home by your lender as long as you meet the terms of the plan.
  7. You have more time to pay debts that can’t be discharged by either chapter (like taxes or back child support).
  8. You can file a Chapter 13 at any time.
  9. You can file repeatedly.
  10. You can separate your creditors by class where different classes of creditors receive different percentages of payment. This enables you to treat debts where there is a co-debtor involved on a different basis than debts incurred on your own.

Disadvantages to a Michigan Chapter 13 payment plan:

  1. You create a payment plan where you use your post bankruptcy income. This ties up your cash over the Chapter 13 plan period.
  2. Legal fees are higher since a Chapter 13 filing is more complex.
  3. Your plan and therefore your debt will last for 3 to five years.
  4. You are involved in the bankruptcy court process for the term of the 3-5 year plan.
  5. Stockbrokers, and commodity brokers cannot file a Chapter 13 bankruptcy petition.
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Michigan Chapter 13 Bankruptcy

There are a number of options to consider under the US Bankruptcy Code when it comes to dealing with debt and filing a petition. Chapter 13 Bankruptcy is a more complex form of petitioning and the main difference between it and Chapter 7 is that the former is a “reorganization” or “restructuring” of debt, whereas the latter is straight “liquidation”.
So what are the main characteristics of the Chapter 13 Bankruptcy under Michigan Bankruptcy Laws?
• Chapter 13 Bankruptcy is available as an option only for individuals
• It is an opportunity for them to start afresh and pay-off significant portions of their outstanding debts
• The debtor commits to repaying all or part of what he owns to his creditors under a 3-5 year repayment plan which has to be approved by the Court.
• The individual must be earning a regular income and have sufficient disposable income to apply for Chapter 13 Bankruptcy
• Most commonly people use Chapter 13 when they are late with mortgage, tax or car payments or want stop their tax debt accruing interest.
Typically, debtors who apply under Chapter 13 have valuable secured assets, such as real estate or a car, which they want to protect as the equity in these assets is higher than the protected amount under Michigan bankruptcy exemptions.
How does it work?
The first step is to develop a repayment plan which is the key to a successful Chapter 13 petition as it describes in detail how much each of your creditors will get paid. The next step is to get the plan approved by the court. You then have 30 days after filing the case to make your first repayment.

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Michigan Chapter 7 Bankruptcy Facts

Recovery after the recession that started in the U.S. at the end of 2007 has been slower than expected and jobs have grown at a very inconsistent and patchy rate. Michigan was one of the 8 states that got hit the hardest by the recession due to huge layoffs and closures in the automotive industry. In 2009 the state lost over 280K jobs and unemployment rate was around 16%.
In this tight economy many consumers who have accumulated debt have been pushed to either seek debt relief or file for bankruptcy. Chapter 7 is generally the simplest and quickest form of bankruptcy and is available to individuals, married couples and companies.
So what is Chapter 7 bankruptcy? Here are the key points to bear in mind if you are considering filing for bankruptcy in the state of Michigan:
• It is a court process (known as “liquidation”) and one of the quickest and simplest ways to wipe out credit card, medical or other unsecured debts.
• In Chapter 7 bankruptcy the trustee will collect all of the debtor’s assets and sell any non-exempt assets.
• Michigan Exemptions – in the Michigan Chapter 7 there is a list of “Bankruptcy exemptions”. In most cases the debtor’s property is exempt so when you file for bankruptcy under Chapter 7 you are allowed to use Michigan state laws i.e. “exemptions” to safeguard your personal property. The trustee may sell your property only if it is worth more than what the exemption amount is.
• Non-Dischargeable Debts – there are some debts such as child support, alimony, student loans or some types of taxes that cannot be discharged in Chapter 7 in Michigan bankruptcies which means that you will still be accountable for paying these debts even after your discharge.
• Reaffirmation Agreement – if you sign a voluntary “reaffirmation agreement” you might be permitted to keep certain secured debts such as your furniture, car or house, however if you decide to do that you cannot wipe-out this debt again for another eight years – you will still owe it and will be obliged to continue with payments.

In conclusion, if you are considering filing under Chapter 7 Bankruptcy and are a resident of the state of Michigan, you should call Firebaugh and Andrews at 734-722-2999 for a free consultation.

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Protecting Your Assets in Bankruptcy: Michigan Property Exemption Laws

Property you get to keep*

The law of what has come to be called “Asset Protection” is actually a mixture of laws that allow you to keep certain property no matter what, even if you owe money to others. Every state has laws that designate specific property you get to keep so that you can continue living a productive life. That is, even if you owe a trillion dollars to someone, the law won’t make you sell the shirt off your back to pay it. And in Texas and Florida, they won’t even make you sell your million dollar mansion, or in Nevada, your gun.

These rules are called “property exemptions.” They vary from state to state. They designate what property is off limits to your ‘creditors ‘– the legal name for those who claim you owe them money.

Citations to exemptions

When you fill out your bankruptcy forms  you will be asked what property you claim as exempt — and a citation of the law that allows it.

This page gives you those citations and gives a brief summary of the exemption.

The help topics on the right provide additional information.

It is up to you to apply the correct citation to your property. If you have any questions, consult an attorney. If you own real estate, you should consult with an attorney about how the exemptions apply to your property.

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Will Filing A Michigan Bankruptcy Wipe Out All My Debts?

Yes, with some exceptions. Bankruptcy will not normally wipe out:

(1) money owed for child support or alimony, fines, and some taxes;(2) debts not listed on your bankruptcy petition;(3) loans you got by knowingly giving false information to a creditor, who reasonably relied on it in making you the loan;(4) debts resulting from “willful and malicious” harm;(5) student loans owed to a school or government body, except if:– the court decides that payment would be an undue hardship;(6) mortgages and other liens which are not paid in the bankruptcy case (but bankruptcy will wipe out your obligation to pay any additional money if the property is sold by the creditor).

 

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Michigan Bankruptcy Facts

Michigan residents who find themselves overwhelmed with debt can seek relief under the federal bankruptcy laws. There are two common forms of bankruptcy for individuals: Under Chapter 7, the courts sell off all non-exempt assets to pay off as much of your debt as possible and under Chapter 13, you keep all or most of your assets but must create a court-approved plan to pay off your debts over time. Although bankruptcy is handled in the federal courts, some of the details vary based on your being a Michigan resident.

District Bankruptcy Courts in Michigan

Michigan’s bankruptcy court is divided into the Eastern District, with the main court in Detroit, and the Western District, with the main court in Grand Rapids. Each district also has divisional offices where you may file so long as you file in the district where you live.

Can I File Chapter 7 Bankruptcy?

You may file Chapter 7 bankruptcy if your average monthly income for the six months before you file is less than Michigan’s median income for a family of your size. For example, if you are married with two children, you must earn less than Michigan’s median income for a family of four, which is $6,037 monthly for 2012. If you make more than this, you must pass a stringent means test to qualify for Chapter 7.

How Long Is a Chapter 13 Repayment Plan?

The amount of time you must spend paying your creditors also depends on your income as compared to Michigan’s median income. For example, if you make less than the median income, your repayment plan will usually be up to three years. If your income matches or exceeds the state median, your plan will be five years, unless you’re able to pay off all unsecured debt in less time.

Can I Keep My House and Car?

Both federal and state laws allow you to exclude certain personal property from your bankruptcy case. Michigan lets you choose whether to use the state or the federal exemptions, but you must pick one or the other, you cannot mix and match from both lists.

The federal and state lists include similar exemptions, although specific items and values vary. Some of these exemptions include:

  • Personal items such as family pictures, clothing, jewelry, and household goods
  • Public benefits
  • Retirement accounts
  • Tools of your trade

Exemption values for your home and car also differ. Michigan adjusts the dollar value of exemptions every three years. As of 2011, the state allows a homestead exemption up to $35,300 of equity or $52,925 for people aged 65 or older or disabled. The federal exemption is $21,625 or $43,250 for married couples filing jointly. The state allows you to keep up to $3,250 of equity in one vehicle, while the federal vehicle exemption is $3,450.

If you have moved to Michigan within two years prior to filing for bankruptcy, you must use the exemptions from your previous home state.

Call us today to get your free consultation 734-722-2999