Being one or two paychecks away from missing a mortgage or car payment can keep anyone up at night, especially if collectors are already calling or a wage garnishment has started. Many people in Michigan reach the point where they know they need relief, but they are stuck on one key question: should they file Chapter 7 or Chapter 13? Picking the wrong path can have real consequences for a house, a vehicle, and a paycheck.
If you live in Michigan and search for "Chapter 7 vs 13 Michigan," you are not looking for a theory. You want to know what these chapters would actually do to your debts, your credit, and your day-to-day life. You may have heard friends, coworkers, or even other lawyers give strong opinions about one chapter or the other, often without any mention of Michigan exemptions, local trustees, or how your exact mix of debts will drive the decision.
This guide looks at Chapter 7 and Chapter 13 the way a Michigan bankruptcy lawyer does, by starting with your income, assets, and debts, then layering on Michigan-specific rules. Both chapters come from federal law, but they do not play out the same way for every filer. Hensel Law Office, PLLC regularly works with Michigan residents to compare both chapters side by side using real numbers, not generic checklists, and this article will show you how that analysis works and how to prepare for it.
How Chapter 7 and Chapter 13 Work for Michigan Residents
Chapter 7 is often called straight bankruptcy because it focuses on wiping out qualifying debts in a relatively short period of time, usually a few months from filing to discharge in a typical consumer case. When you file Chapter 7 in Michigan, a bankruptcy estate is created that temporarily includes your non-exempt property, and a trustee is appointed to review your assets, income, and recent financial history. In many Michigan cases, exemptions cover everything the person owns, so the trustee does not sell anything, but that depends on your equity levels and the exemptions you use.
Chapter 13 is different. It is a repayment plan that usually lasts three to five years, supervised by the court and a Chapter 13 trustee. Instead of focusing on selling non-exempt assets, Chapter 13 centers on your future income. You propose a monthly payment that fits your budget and that meets legal tests for paying secured, priority, and unsecured debts. At the end of a successful plan, remaining qualifying unsecured debts are discharged, much like in Chapter 7.
Both chapters are filed in the U.S. Bankruptcy Court, and both trigger an automatic stay that usually stops most collection actions the day the case is filed. However, Michigan-specific exemption rules, local trustee practices, and common local debt patterns change how risky Chapter 7 is for your property and how realistic Chapter 13 payments are for your household. Because Hensel Law Office, PLLC handles both Chapter 7 and 13 cases in Michigan, the goal is not to push everyone into one chapter, but to match the chapter to the filer’s real situation.
Eligibility Rules for Chapter 7 vs. Chapter 13 in Michigan
Many people assume they can simply choose Chapter 7 because it is faster, but Chapter 7 eligibility is controlled by the means test. The means test compares your household income to the median income level for a household of your size in Michigan and then adjusts for certain allowed expenses. If your income is below the median, you generally pass the means test. If it is above, a more detailed calculation of allowed expenses and debts determines whether a Chapter 7 filing would be presumed abusive.
Chapter 13 has its own eligibility framework. You must have a regular income, and your total secured and unsecured debts need to be within limits set by federal law. People often end up in Chapter 13 because their income is too high to comfortably pass the Chapter 7 means test, because they filed a prior Chapter 7 too recently, or because they are behind on a mortgage or car loan and need a structured way to catch up. Chapter 13 is also used when a filer has significant nondischargeable or priority debts, such as certain taxes or domestic support obligations, that need to be repaid over time.
In Michigan, household structure matters. A married person whose spouse is not filing may still need to include some or all of the spouse’s income in the means test, and that can affect whether Chapter 7 is available. It is also common for someone to technically qualify for both chapters from an income standpoint, yet find that their assets or debt mix make one option clearly safer. Hensel Law Office, PLLC typically reviews pay stubs, tax returns, and a detailed budget, then runs both a means test and a draft Chapter 13 budget so you see how each route looks on paper before deciding.
How Michigan Exemptions Affect Your Home, Car, and Property
The fear of losing a house, car, or personal property is one of the biggest reasons people hesitate to file. Exemptions are a part of the law that addresses this fear. They are legal protections that let you keep certain amounts of equity in your primary residence, vehicles, household goods, retirement accounts, and other property. In Michigan, you may have a choice between using Michigan state exemptions or a set of federal exemptions, and the better choice depends on what you own and how much equity is in each asset.
In Chapter 7, the trustee looks at your assets and compares their equity to the exemptions you claim. Equity is the value of the property minus what you owe on it. If your equity in a home, vehicle, or other property is fully covered by exemptions, the trustee typically leaves that asset alone. If there is significant non-exempt equity, the trustee may consider selling the asset, paying off any liens, paying you your exempt amount, and using the rest to pay creditors. That analysis often determines whether Chapter 7 is safe for someone with built-up equity in Michigan real estate or a paid-off vehicle.
In Chapter 13, exemptions still matter, but in a different way. Instead of selling non-exempt property, the law generally requires that unsecured creditors receive at least as much through your plan as they would have received if you filed Chapter 7 and your non-exempt assets were sold. This means you can often keep property with non-exempt equity in Chapter 13, but you may need to increase your plan payment to account for that extra value. For example, a Michigan homeowner with equity above the homestead exemption might choose Chapter 13, make a higher monthly payment for a set number of years, and still keep the house.
Because the choice between Michigan and federal exemptions can tilt the balance between Chapter 7 and 13, this is not something to guess at. Hensel Law Office, PLLC routinely compares both exemption schemes for Michigan clients, calculates rough equity in homes and vehicles, and assesses whether a Chapter 7 would put assets at risk. If Chapter 7 looks risky but the client’s income can support a realistic Chapter 13 payment, the recommendation may shift toward Chapter 13 to protect hard-earned property.
What Happens to Different Types of Debt in Chapter 7 vs. Chapter 13
How each chapter treats your specific debts often matters more than any abstract pros and cons list. Unsecured debts, such as credit cards, medical bills, payday loans, and many personal loans, usually receive similar end results in both chapters, but through different paths. In Chapter 7, most unsecured debts are discharged in a matter of months with no ongoing payments, unless they fall into nondischargeable categories. In Chapter 13, unsecured creditors often receive a share of what you pay into the plan, which might be anywhere from a small percentage to the full amount, and the remaining balance can be discharged at the end if you complete your plan.
Secured debts involve property that serves as collateral, such as a mortgage on a home or a lien on a car. In Chapter 7, you generally choose between keeping and paying for the property or surrendering it. Keeping a secured asset often involves staying current on payments and, in some cases, signing a reaffirmation agreement that keeps you personally liable on that particular loan after bankruptcy. If you are far behind and cannot catch up quickly, surrendering the property in Chapter 7 wipes out your personal liability for any deficiency balance after the lender sells it.
Chapter 13 gives more options on secured debts, which is a major reason Michigan homeowners and car owners use it. You can spread out mortgage or car loan arrears over a three to five-year plan, which is called curing arrears, while also resuming your regular monthly payments. In some situations, Chapter 13 also allows a reduction of certain vehicle loan balances to the car’s current value, a concept known as cramdown, though detailed rules apply. The result is that someone in Michigan who is a few months behind on a mortgage or car loan can often save the property in Chapter 13, even if Chapter 7 would leave them too far behind.
Priority and nondischargeable debts, such as recent income taxes, child support, alimony, and most student loans, stand in a separate category. These are generally not wiped out in Chapter 7, though the automatic stay can pause some collection while the case is pending. In Chapter 13, these debts are often paid in full through your plan before unsecured creditors get anything. That structure can be a lifeline for a Michigan filer with significant tax debt or support arrears, because it creates a clear payment path and still allows discharge of other unsecured debt to free up income. At Hensel Law Office, PLLC, a detailed creditor list is mapped to these categories so you see exactly which debts will be erased, which must be paid, and which chapter handles them more effectively.
Timeline and Day-to-Day Life in Each Chapter
Knowing how long each chapter lasts and what daily life looks like during the case can make the decision feel less abstract. In a typical Michigan Chapter 7, the process from filing to discharge often takes a few months, assuming there are no serious disputes or asset sales. Shortly after filing, the automatic stay usually stops garnishments, lawsuits, and most collection calls. You attend a meeting of creditors, often called the 341 meeting, where the trustee asks questions about your paperwork and finances. After that, you mainly wait for deadlines to pass and for the court to issue a discharge, unless the trustee needs more information or is exploring non-exempt assets.
Chapter 13 runs on a longer schedule. You file the case, and the automatic stay goes into effect, stopping garnishments, foreclosure sales, and most collection activity. You propose a repayment plan, start making monthly payments to the Chapter 13 trustee, and attend a 341 meeting and, in many cases, a confirmation hearing where the judge considers whether to approve the plan. Once confirmed, you keep making plan payments, keep up with ongoing obligations like your current mortgage payment, and provide annual tax returns and other updates while the trustee monitors your case over three to five years.
Many Michigan filers are surprised by how structured but manageable the day-to-day reality can be when the plan is realistic. In Chapter 7, your main responsibilities are to be honest, provide documents, attend your meeting, and complete a required financial education course. In Chapter 13, the added responsibilities include sticking to a budget, making every plan payment on time, and reporting significant income changes. Hensel Law Office, PLLC spends time preparing clients for what will happen at their trustee meeting, explains which expenses trustees in Michigan often question, and works to build Chapter 13 plans on budgets that reflect real life rather than wishful thinking.
Key Tradeoffs: Which Chapter Fits Your Goals in Michigan
Once you understand how each chapter works, the next step is lining that up with your goals. One core tradeoff is speed versus structure. Chapter 7 moves faster and usually involves no long-term payment obligations, which appeals to Michigan renters and homeowners who are current on their mortgages and have mostly unsecured debts. Chapter 13 takes longer but gives you tools that Chapter 7 does not, such as catching up on a mortgage or car loan, dealing with certain tax debts over time, and keeping property that has more equity than exemptions cover.
Your income stability is another key factor. If your income is steady and high enough to support a meaningful monthly payment, Chapter 13 may be a good fit, especially if you need to cure arrears or protect non-exempt equity. If your income is modest or irregular, and you have little non-exempt property, Chapter 7 may line up better with your financial reality. The mix of your debts matters too. A Michigan renter with heavy credit card and medical debt, current on all secured debts, and with few assets, often gets the most benefit from a clean Chapter 7 discharge. In contrast, a homeowner who is several months behind on a mortgage but wants to stay in the house may rely on Chapter 13 to spread out the catch-up payments and stop a foreclosure.
Consider a few common Michigan scenarios. A family renting in Grand Rapids, with two car loans that are current and a large pile of credit card and medical debt from a local hospital system, might find Chapter 7 offers quick relief with little asset risk if exemptions cover their modest property. A homeowner outside Detroit who has equity above the available homestead exemption and is behind on the mortgage may be better served by Chapter 13, which allows them to protect the extra equity and cure arrears over several years. Someone facing tax debts and a wage garnishment through a Michigan employer might use Chapter 13 to stop garnishment, pay the taxes in an organized plan, and still discharge older unsecured debts. Hensel Law Office, PLLC routinely builds these side-by-side comparisons with real numbers so you can see which path fits your goals and constraints.
Common Myths About Chapter 7 and Chapter 13 in Michigan
Misunderstandings about bankruptcy keep many people from even exploring their options. One of the most widespread myths is that Chapter 7 always means losing your house or car. In reality, many Michigan Chapter 7 filers keep both, because exemptions protect their equity and they stay current on payments. The risk arises when equity exceeds what exemptions cover, or when payments are already far behind. That is why a careful look at equity and exemptions is essential before choosing Chapter 7.
On the other side, people often believe that Chapter 13 means paying every debt in full, which can make it sound pointless compared to Chapter 7. While every case is different, many Chapter 13 plans pay unsecured creditors only a portion of what is owed, and the remaining eligible balances are discharged at the end of a completed plan. The plan must still meet legal tests, especially for secured and priority debts, but it is not simply a five-year payment plan for the full amount of every bill.
Another common belief is that you can simply pick whichever chapter you prefer. In truth, the law places guardrails around that choice. The means test and prior filing history limit access to Chapter 7. Debt limits, income stability, and realistic budgeting limit access to Chapter 13. Some Michigan filers are technically eligible for both, but their assets, arrears, or nondischargeable debts make one chapter clearly more practical. An additional trap is assuming that any Chapter 13 plan that looks good on paper will succeed. Plans built on overly tight budgets or uncertain income often fail, leading to dismissal or conversion. Drawing on experience with Michigan trustees, Hensel Law Office, PLLC helps clients avoid those pitfalls by challenging unrealistic assumptions early and recommending the chapter that they can actually carry through to discharge.
- Related: Bankruptcy Myths
Preparing for a Michigan Bankruptcy Consultation
Once you have a basic sense of how Chapter 7 and Chapter 13 compare in Michigan, the next step is getting specific. A lawyer can only give meaningful advice if they have accurate information about your income, assets, and debts. Before a consultation, gather recent pay stubs, at least your most recent tax return, a list of all your debts with approximate balances, and basic information about any real estate or vehicles you own, including loan balances and estimated values. If you have collection lawsuits or garnishment paperwork from Michigan courts, bring those too.
With these documents, a Michigan bankruptcy lawyer can run the means test using your actual income, identify which exemptions are available, and sketch out what a Chapter 7 discharge or a Chapter 13 plan might look like for you. You will be able to see, for example, whether your home equity is fully protected, how much a realistic Chapter 13 payment might be, and which debts would survive in either chapter. This grounded comparison is far more reliable than online calculators or national articles that do not account for Michigan-specific rules.
An initial review is not a commitment to file. It is a way to understand your real options and the likely timeline before garnishments, lawsuits, or foreclosure move further. Hensel Law Office, PLLC uses a structured intake process that walks you through the necessary documents and questions so nothing important is missed. That preparation helps avoid surprises that could derail a Chapter 13 plan or create asset issues in Chapter 7, and it puts you in a position to make a clear, confident decision.
Find Out Which Chapter Fits Your Michigan Financial Future
Choosing between Chapter 7 and Chapter 13 in Michigan is not about picking the chapter that sounds easiest on paper. It is about matching the law to your income, assets, and debts so you can protect what matters most and move forward. When you understand how exemptions protect your property, how each chapter treats your specific debts, and what daily life looks like during a case, bankruptcy becomes a structured tool rather than a mystery.
If you are weighing Chapter 7 vs 13 in Michigan, a focused conversation with a lawyer who handles these cases every day can turn a confusing choice into a clear plan. After you gather your basic financial information, contact Hensel Law Office, PLLC at (888) 258-0651 to review your situation and see how each chapter would actually play out for you under Michigan law. You do not have to guess which option is right.