How Much Debt is Worth Filing Bankruptcy in Michigan?

When you start asking questions about bankruptcy filing as a means of debt relief, you know you’re in a tight spot. More than likely, your debts have become so stressful that they keep you awake at night. When you don’t have any good options, you’re forced to choose the “least bad” option. Is bankruptcy the solution for you?

While there is no federal minimum debt requirement for filing bankruptcy, the unofficial guidance is that it may not be worth it to file if your debts are less than $10,000. Of course, there are other big factors that will help you determine when to file bankruptcy, and those will be explained in detail below. However, for most people, the cost of filing plus the legal fees may outweigh the benefits if you don’t meet the informal minimum debt amount.

Many lawyers, including CBH Attorneys’ bankruptcy lawyers, offer a free consultation so that you can get some professional advice without incurring more financial stress. Our experience and wisdom can help steer you in the right direction for debt relief options, especially if you are considering whether you should file for bankruptcy.

Is Bankruptcy A Good Choice For Me?

While the biggest consideration may be the amount of debt you owe, there are other factors that the bankruptcy court will consider. You need to convince the court that you are unable to pay back your debt, since bankruptcy debt settlement is not automatically granted to everyone.

Do You Qualify for Bankruptcy in Michigan?

The first question you must ask is whether your situation meets the qualifications in the bankruptcy code.

In order to qualify for a Chapter 7 bankruptcy, you must be able to pass a means test. The court looks at your income, expenses and family size. If your income is lower than the median income for a household of your size, you automatically qualify. If you have a higher income, the court will also consider your expenses to determine whether you can file Chapter 7, or if your disposable income is high enough to restructure and at least partially repay your debts. Also, you cannot have previously filed a Chapter 7 bankruptcy in the last 8 years.

As of 2023, Chapter 13 filers must have less than $2,750,000 in combined unsecured debt and secured debt. This is a substantial increase from the previous limits of $465,275 in unsecured debt and $1,395,875 in secured debt, and were passed as part of the Bankruptcy Threshold Adjustment and Technical Corrections Act of 2022. Under current law, the higher limit has been extended to at least June 21, 2024, and is set to revert to the previous limits if not extended or updated before then.

How Much Debt Do You Hold?

Depending on your location and the amount of your debt, it may not make sense to file bankruptcy because of the associated costs. Bankruptcy can cost $1,000 to $6,000, between the cost of filing and the attorney fees. You will also be required to take a credit counseling course before you can file, which will cost $20-$100.

This is why people with under $10,000 in debt are often advised to seek an alternative to bankruptcy to deal with their financial obligations.

Are Your Creditors Willing to Work with You?

Most creditors would rather receive a smaller amount from you than no money at all. If you’ve got so much debt that you cannot pay it off, you may be able to negotiate a smaller amount. It never hurts to ask, especially when it comes to medical debt.

Secured Debt vs. Unsecured Debt

If you have secured debts like a home mortgage, car loan, or tax debt, this means the debt is secured by property that can be repossessed by your creditor. If you have mostly secured debts and you are unable to continue payments, then you may lose your home and car when you file for bankruptcy.

If you have unsecured debts like credit card debt or medical debt, there is no collateral that your creditors can take when you are unable to pay. If you have mostly unsecured debts, you may be able to discharge these debts in a Chapter 13 bankruptcy but reaffirm your home mortgage. This means you can discharge your unsecured debts, but keep your house by committing to continue payments on your mortgage.

RELATED: How to File Bankruptcy and Keep Your Car

Dischargeable Debt

Chapter 7 or Chapter 13 bankruptcy will not help you if you hold debt that is not dischargeable in bankruptcy. Federal bankruptcy law prevents people from filing for bankruptcy to relieve child support, alimony, student loans, most tax debts, criminal restitution, and personal injury damages involving gross negligence or malice.

Most bankruptcy filers are doing so because of medical bills, but credit card debt and personal loans are also big drivers for Chapter 7 bankruptcy.

The Downsides to Bankruptcy

You may be convinced the bankruptcy is a quick fix to your problems. That may be true! However, there are some consequences that you should know about before you go down this road.

First, you may lose your assets, like your house, car, and any other items of value. This can include expensive clothing, jewelry, collections, and more.

Second, it won’t solve all your problems. You’ll still be on the hook for student loans and domestic support obligations. Even if you file bankruptcy, your tax debts will still follow you.

Third, your credit report will take a hit. Your bankruptcy will stay on your credit history for 7 to 10 years. This will make it difficult for you to borrow money or get approval for loans.

RELATED: Bankruptcy: Relief for the ‘Honest but Unfortunate Debtor’

More Options for Debt Relief

Before you start the process of filing for bankruptcy, you should ask if you can find another solution for your financial hardship.

• Debt Management Plan: A credit counseling agency or attorney will work with you and your creditors to find mutually beneficial terms to your debt. Ideally you’ll get a much better interest rate with this plan.
• Debt Consolidation: You consolidate all your debts under one new loan. With this new loan, you should have a lower interest rate, and you’re only working with one creditor rather than several companies.
• Debt Settlement: This is a way to negotiate a much smaller amount of debt with your creditors, often through debt settlement companies. This can be a last resort before Chapter 7, since most creditors will not work with you if you are still able to make minimum payments on your debt.

Payday loans may seem like a good option, but those are predatory and will often get you much further behind instead of helping.

Although it may sound like an expensive option, you should consider talking to a bankruptcy lawyer. Since everyone comes from a different financial situation, there is no one-size-fits-all solution. An attorney can take a look at your specific debts and advise you on the best course of action. They will be familiar with bankruptcy laws, and can tell you if Chapter 7, Chapter 11, or Chapter 13 are viable solutions for your debt.

RELATED: What Are the Alternatives to Filing Bankruptcy for Individuals and Small Businesses?

CBH Attorneys Can Help You Navigate Bankruptcy and Debt Management

At CBH Attorneys and Counselors, we know how stressful it is to have debt collectors knocking on your door, calling your phone, and filling your mailbox. We want to help you find relief from your financial problems. When it comes to debt solutions, we’ve seen it all.

When you come to us for help, you get our years of experience working for you, to create a custom plan to help you unbury yourself from this debt. Each situation is different, and we consider all of the circumstances surrounding your financial situation to help you find the best way forward.

If you aren’t sure if bankruptcy is right for you, or if you need help with your current bankruptcy case, we offer free consultations to help you decide. To get started, fill out our contact form today or call us at (616) 608-3061. With offices in Kalamazoo and Grand Rapids, our team is ready to serve you.

The content provided here is for informational purposes only and should not be construed as legal advice on any subject.