Navigating Between Chapter 7 and Chapter 13 for 2026

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

That analysis typically identifies whether Chapter 7 is safe for someone with built-up equity in Michigan realty or a paid-off car. In Chapter 13, exemptions still matter, however in a various method. Instead of selling non-exempt residential or commercial property, the law normally requires that unsecured financial institutions get at least as much through your plan as they would have received if you submitted Chapter 7 and your non-exempt properties were offered.

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A Michigan homeowner with equity above the homestead exemption might pick Chapter 13, make a greater month-to-month payment for a set number of years, and still keep the home. Due to the fact that the choice 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 customer's income can support a realistic Chapter 13 payment, the recommendation may move towards Chapter 13 to secure hard-earned residential or commercial property. How each chapter treats your specific debts frequently matters more than any abstract benefits and drawbacks list. Unsecured debts, such as credit cards, medical expenses, payday advance loan, and many personal loans, normally get similar end results in both chapters, but through various paths.

In Chapter 13, unsecured creditors often get a share of what you pay into the plan, which may be anywhere from a little portion to the complete amount, and the staying balance can be discharged at the end if you complete your plan. Secured debts involve home that works as security, such as a home loan on a home or a lien on a car.

Legal Support for 2026 Bankruptcy Filers

Keeping a secured property typically involves remaining current on payments and, sometimes, signing a reaffirmation contract that keeps you personally accountable on that specific loan after insolvency. If you are far behind and can not capture up rapidly, giving up the property in Chapter 7 eliminates your personal liability for any shortage balance after the loan provider offers it.

You can expand mortgage or vehicle loan defaults over a three to five-year strategy, which is called curing arrears, while also resuming your regular month-to-month payments. In some scenarios, Chapter 13 also enables a reduction of specific car loan balances to the cars and truck's present value, an idea understood as cramdown, though comprehensive rules apply.

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Priority and nondischargeable financial obligations, such as recent earnings taxes, child support, alimony, and the majority of student loans, stand in a separate category. These are generally not eliminated in Chapter 7, though the automated stay can stop briefly some collection while the case is pending. In Chapter 13, these financial obligations are frequently paid completely through your plan before unsecured creditors get anything.

At Hensel Law Workplace, PLLC, a comprehensive creditor list is mapped to these categories so you see precisely which financial obligations will be eliminated, which need to be paid, and which chapter manages them better. Knowing the length of time each chapter lasts and what life appears like during the case can make the decision feel less abstract.

Soon after filing, the automatic stay typically stops garnishments, lawsuits, and most collection calls. You attend a conference of lenders, often called the 341 conference, where the trustee asks questions about your documents and finances. After that, you mainly await deadlines to pass and for the court to issue a discharge, unless the trustee requires more information or is checking out non-exempt assets.

Picking Chapter 13 for Your 2026 Needs

You file the case, and the automated stay goes into result, stopping garnishments, foreclosure sales, and the majority of collection activity. You propose a payment plan, begin making month-to-month payments to the Chapter 13 trustee, and go to a 341 conference and, oftentimes, a verification hearing where the judge thinks about whether to authorize the strategy.

Lots of Michigan filers are surprised by how structured but manageable the day-to-day truth can be when the strategy is reasonable. In Chapter 7, your main responsibilities are to be truthful, provide documents, attend your conference, and finish a required monetary education course. In Chapter 13, the included obligations include staying with a budget, making every plan payment on time, and reporting considerable income modifications.

Once 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 commitments, which interest Michigan tenants and property owners who are current on their home loans and have mostly unsecured financial obligations.