Legal Toolkit Michigan Bankruptcy, Debt, Consumer Law

What to Know About Bankruptcy, Debt, Consumer Law



Bankruptcy is the process by which federal bankruptcy courts help consumers and businesses in financial trouble to eliminate some debts or repay them under the protection of bankruptcy courts. Certain debts cannot be discharged under bankruptcy and these usually include spousal support, child support, tax debts, and educational loans. The two most common kinds of consumer bankruptcy are Chapter 7and Chapter 13. Bankruptcy laws changed significantly in October 2006, requiring consumer debt education and creating very specific rules about eligibility for each kind of bankruptcy, mostly related to the level of disposable income (after certain allowed expenses) according to a "means test".

  1. Chapter 7 bankruptcy is also known as “liquidation” bankruptcy because non-exempt property or assets will be sold (liquidated) to pay off debts. Chapter 7 erases most or all of unsecured debt (debt for which collateral hasn’t been pledged). Exempt property like clothing, cars, a home, and furniture, has a certain monetary allowance assigned to it, allowing the filer to receive back some of the value of those items and make a fresh start after liquidation. In Michigan, for example, the exemption amount for a car is $1,000 and a residence is $5,000. A consumer debt attorney can advise what items may be claimed as being exempt, what the exemption amounts are for those items, and what property, if any, may be kept. In addition to other requirements, Chapter 7 requires, for consumers, that the filer(s) have less income than the median family income per family size, per state, according to the Census (see "Means Test B22A in "Where to Read More"). Filers not eligible for Chapter 7 can usually file for a Chapter 13 bankruptcy.
  2. Chapter 13 bankruptcy is also known as “wage earner” plan because the debtor has been determined to have enough regular income to pay off some portion of their debts over the course of 3-5 years. In Chapter 13, loans for cars and homes can be maintained to avoid foreclosure or repossession and co-signers on previous debts may be protected. There are limits to the amount of debt that can be filed under Chapter 13; secured debts must be less than $922,975 and unsecured debts must be less than $307,675.
  3. Chapter 11 and Chapter 12 are less common to consumers. Chapter 11 is typically for businesses or individuals who have debts that exceed the Chapter 13 limits or who own substantial non-exempt assets. Chapter 12 is much like Chapter 13 except that it applies to those whose debts arise mostly (80%) from the operation of a family farm.


Identity Theft

Identity theft occurs when someone obtains and/or uses your name, Social Security number, credit card number or some other piece of your personal information to apply for a credit card, make unauthorized purchases, gain access to your bank accounts or obtain loans under your name. If you suspect identity theft, contact your police department immediately and/or see "What to Do" or visit the Attorney General or Federal Trade Commission links in "Where to Read More".


Consumer Problems

The Federal Trade Commission (FTC) and Better Business Bureaus (BBB) investigate consumer fraud and link to agencies that report trends and tips about recent national fraudulent activities. Consumer Law lawyers specialize in faulty consumer product issues. See "Where to Read More" for links to FTC or BBB.


Credit Report Problems

Be very cautious about hiring a Credit Repair Agency to "fix your credit" with big promises of glowing credit reports in your future. No one can legally remove accurate and timely negative information from a credit report but the law allows you to ask for an investigation of information in your file that you dispute as inaccurate or incomplete. The federal Fair Credit Reporting Act (FCRA) promotes the accuracy and privacy of information in the files of the nation’s consumer reporting companies and requires that the 3 major credit reporting agencies provide consumers with a free copy of their credit report once every 12 months. See the Federal Trade Commission Credit Report and Major Credit Report agencies link in "Where to Read More".