A fundamental goal of the federal bankruptcy laws enacted by Congress is to give debtors a financial "fresh start" from burdensome debts. The Supreme Court made this point about the purpose of the bankruptcy law in a 1934 decision:
“[I]t gives to the honest but unfortunate debtor…a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.”
Local Loan Co. v. Hunt, 292 U.S. 234, 244 (1934).
This goal is accomplished through the bankruptcy "discharge", which is granted at the conclusion of the bankruptcy process and releases debtors from personal liability from specific debts and prohibits creditors from ever taking any action against the debtor to collect those debts. The process extinguishes the debtors' qualified debts and allows debtors to keep certain property that is exempt from surrender. the consequences of this process are that your credit is affected for many years after the discharge but there are ways to build your credit to minimize the amount of time of your financial disability post-bankruptcy. This process should be discussed with an attorney as it is rather complicated and there are risks and rewards to be weighed before making a decision. I can help you understand your options and guide you through the process.
Individual debtors may chose between filing for bankruptcy relief under either Chapter 7 or Chapter 13 of the Bankruptcy Code. Debtors have to file a petition and a set of schedules for either chapter. The general difference between the two is that Chapter 7 is an "in and out" liquidation process and Chapter 13 is the establishment of a payment plan that lasts 3 -5 years depending on certain criteria Deciding between the two is determined by which is available because of chapter criteria and which is best for the debtors situation and asset retention. The first step is to determine the household or family income of the debtor(s) and see where it falls in comparison to the Census Bureau's calculated median family income. This "median family income" changes and is calculated on a regular basis by the Census Bureau. The "median family incomes" presently referenced by the Census Bureau for Michigan and Ohio are as follows:
If your family income is above the "median family income" level then further analysis must be done to determine whether you qualify for bankruptcy and which chapter will be available to you. If your family income is below the "median family income" level then you will more than likely be eligible for a Chapter 7 or Chapter 13 filing. This analysis should be done by an attorney.
The next step is to determine the debtor's disposable income which is referred to as the bankruptcy "means test". This is calculated by entering the debtor income and expense information onto the appropriate form (i.e., Bankruptcy Form 22A or Form 22C) and then making calculations using that information entered. Some of the information needed to complete these forms, such as a debtor's current monthly income and expenses, comes from the debtor's own personal records. This is what the client questionnaire above is used for, gathering the required personal debtor information. However, other information that is needed to complete the forms comes from the Census Bureau, like that stated above, and the Internal Revenue Service (IRS). This process should be discussed with an attorney as it is rather complicated and I can help you analyze this "means testing" process, understand your options, and guide you through the bankruptcy process.
The particulars of the different chapters and their respective benefits and costs are examined in the other pages, Chapter 7 and Chapter 13 on this website.
Bankruptcy Basics - U.S. Federal Courts Literature on Bankruptcy
- "Bankruptcy Basics is a publication of the Bankruptcy Judges Division of the Administrative Office of the U.S. Courts. It provides basic information to debtors, creditors, court personnel, the media, and the general public on different aspects of federal bankruptcy laws. It also provides individuals who may be considering bankruptcy with a basic explanation of the different chapters under which a bankruptcy case may be filed and answers some of the most commonly asked questions about the bankruptcy process. Bankruptcy Basics is not a substitute for the advice of competent legal counsel or a financial expert, nor is it a step-by-step guide for filing for bankruptcy. Neither the Bankruptcy Judges Division nor the Administrative Office of the United States Courts can provide legal or financial advice. Such advice may be obtained from a competent attorney, accountant, or financial adviser."
United States Bankruptcy Court - Eastern District of Michigan