Should You Use Chapter 13 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, car, or other home is fully covered by exemptions, the trustee usually leaves that property alone.

That analysis frequently identifies whether Chapter 7 is safe for someone with built-up equity in Michigan property or a paid-off automobile. In Chapter 13, exemptions still matter, but in a different way. Instead of selling non-exempt home, the law generally requires that unsecured creditors get at least as much through your strategy as they would have gotten if you filed Chapter 7 and your non-exempt possessions were sold.

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A Michigan house owner with equity above the homestead exemption might select 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 option between Michigan and federal exemptions can tilt the balance between Chapter 7 and 13, this is not something to rate.

If Chapter 7 looks dangerous however the client's earnings can support a sensible Chapter 13 payment, the suggestion may move towards Chapter 13 to protect hard-earned property. How each chapter treats your specific financial obligations often matters more than any abstract pros and cons list. Unsecured debts, such as charge card, medical bills, payday loans, and many personal loans, normally receive comparable end results in both chapters, however through various paths.

In Chapter 13, unsecured creditors typically get a share of what you pay into the plan, which might be anywhere from a little percentage to the complete amount, and the remaining balance can be discharged at the end if you complete your strategy. Guaranteed financial obligations include home that serves as collateral, such as a home loan on a home or a lien on a cars and truck.

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Keeping a secured property typically includes remaining existing on payments and, sometimes, signing a reaffirmation agreement that keeps you personally responsible on that particular loan after insolvency. If you are far behind and can not capture up rapidly, surrendering the property in Chapter 7 eliminates your individual liability for any shortage balance after the lending institution sells it.

You can spread out mortgage or vehicle loan arrears over a 3 to five-year plan, which is called treating defaults, while also resuming your routine monthly payments. In some scenarios, Chapter 13 likewise enables a reduction of specific vehicle loan balances to the vehicle's existing value, a principle called cramdown, though detailed guidelines use.

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Top priority and nondischargeable debts, such as recent earnings taxes, kid support, alimony, and the majority of student loans, stand in a different classification. These are normally not erased in Chapter 7, though the automatic stay can pause some collection while the case is pending. In Chapter 13, these debts are typically paid in full through your plan before unsecured financial institutions get anything.

At Hensel Law Office, PLLC, a detailed financial institution list is mapped to these classifications so you see precisely which financial obligations will be eliminated, which must be paid, and which chapter handles them better. Understanding how long each chapter lasts and what life appears like throughout the case can make the choice feel less abstract.

Shortly after filing, the automated stay generally stops garnishments, claims, and many collection calls. You go to a meeting of creditors, often called the 341 meeting, where the trustee asks concerns about your documents and financial resources. After that, you mainly wait on due dates to pass and for the court to issue a discharge, unless the trustee requires more info or is exploring non-exempt possessions.

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You submit the case, and the automated stay goes into result, stopping garnishments, foreclosure sales, and a lot of collection activity. You propose a payment plan, begin making regular monthly payments to the Chapter 13 trustee, and attend a 341 meeting and, in numerous cases, a verification hearing where the judge considers whether to authorize the strategy.

Lots of Michigan filers are surprised by how structured but manageable the daily reality can be when the strategy is reasonable. In Chapter 7, your primary duties are to be truthful, supply files, attend your meeting, and finish a required monetary education course. In Chapter 13, the added responsibilities consist of adhering to a budget, making every strategy payment on time, and reporting significant income changes.

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 quicker and generally includes no long-term payment obligations, which appeals to Michigan occupants and homeowners who are present on their home mortgages and have mostly unsecured financial obligations.