What Michigan Residents Should Know Before Filing for Bankruptcy

Filing for bankruptcy is a major financial decision that can have long-lasting effects on your life. For many Michigan residents, it can offer a fresh start when overwhelmed by debt—but it’s essential to fully understand the process before diving in. Whether you’re dealing with credit card debt, medical bills, or wage garnishment, this guide will walk you through everything Michigan residents need to know before filing for bankruptcy in 2025.

Understanding Bankruptcy: The Basics

Bankruptcy is a legal process that allows individuals or businesses to eliminate or restructure their debts under the protection of a federal court. In Michigan, as in all states, bankruptcy is governed by federal law, specifically under the U.S. Bankruptcy Code, but state laws also play a significant role—especially when it comes to exemptions and property protection.

There are several types of bankruptcy filings, but the most common for individuals are Chapter 7 and Chapter 13. Let’s explore these two options in detail.

Chapter 7 vs. Chapter 13 Bankruptcy in Michigan

Chapter 7 Bankruptcy—Liquidation

Also known as “straight bankruptcy,” Chapter 7 involves liquidating non-exempt assets to pay off creditors. If you’re eligible, most of your unsecured debts—like credit cards and medical bills—can be discharged.

Key Points:

• Fast process (typically 3–6 months)
• Requires passing a means test to qualify
• Most unsecured debts are wiped out
• You may lose non-exempt property

This option is best for those with limited income and assets and who are unable to pay off debts over time.

Chapter 13 Bankruptcy—Reorganization

Chapter 13 is often called the “wage earner’s plan.” It allows you to keep your assets while repaying a portion of your debts over 3 to 5 years.

Key Points:

• You create a court-approved repayment plan
• Can stop foreclosure and repossession
• Allows debt consolidation into one monthly payment
• Requires steady income

Chapter 13 is ideal if you’re behind on your mortgage or car loan but want to catch up and keep your property.

Who Should Consider Filing for Bankruptcy in Michigan?

Before filing for bankruptcy, Michigan residents should assess their full financial picture. Filing may be a good option if you:

• Are overwhelmed by credit card debt
• Face constant calls from collection agencies
• Have wage garnishment or lawsuits pending
• Are at risk of home foreclosure
• Can’t keep up with medical bills
• Have experienced a job loss or reduction in income

Bankruptcy is not always the best option. Alternatives like debt settlement, debt consolidation, or working directly with creditors may be worth exploring first.

Michigan’s Bankruptcy Exemptions

One of the most important things to understand before filing for bankruptcy is what assets you can protect under Michigan law.

Michigan allows filers to choose between federal and state exemptions, depending on which set is more favorable.

Common Michigan State Exemptions:

• Homestead Exemption: Up to $40,475 in equity ($60,725 if over 65 or disabled)
• Vehicle Exemption: Up to $4,000 in equity
• Personal Property: Clothing, furniture, and appliances—reasonably necessary for daily living
• Wages: A percentage of earned but unpaid wages may be exempt
• Tools of the Trade: Up to $2,550 in tools or equipment

If you opt for federal exemptions, you’ll get different limits, including a wildcard exemption that can apply to any property.

The Bankruptcy Means Test in Michigan

If you’re considering Chapter 7, you’ll need to pass the bankruptcy means test, which determines whether your income is low enough to qualify.

How it works:

• Compares your income to the median income in Michigan
• If your income is below the median, you typically qualify
• If it’s above, additional calculations will assess disposable income

As of 2025, the median income in Michigan varies by household size. For example:

• 1 person: ~$61,000
• 2 people: ~$77,000
• 3 people: ~$92,000
• 4 people: ~$105,000+

These numbers change periodically, so check the U.S. Trustee Program for the latest figures.

How Bankruptcy Affects Your Credit

One of the biggest concerns people have when filing for bankruptcy is how it impacts their credit score.

• Chapter 7 stays on your credit report for 10 years
• Chapter 13 remains for 7 years
• Your credit score will likely drop initially
• Rebuilding credit is possible with time and effort

Many Michigan residents begin seeing credit improvement within 12 to 18 months after discharge by using secured credit cards, paying bills on time, and keeping debt levels low.

Filing Process: Step-by-Step in Michigan

Here’s what you can expect during the bankruptcy process in Michigan:

1. Credit Counseling Course: Mandatory within 180 days before filing
2. File Bankruptcy Petition: Includes forms detailing your assets, debts, income, and expenses
3. Automatic Stay: Halts most collection actions
4. 341 Meeting of Creditors: A short meeting where creditors can ask questions
5. Financial Management Course: Must be completed before discharge
6. Discharge of Debts: Final step (if approved) wiping out eligible debts

This process can take 3–6 months for Chapter 7 and 3–5 years for Chapter 13.

Costs of Filing for Bankruptcy in Michigan

Filing for bankruptcy is not free. In Michigan, here’s what you can expect:

• Chapter 7 filing fee: $338
• Chapter 13 filing fee: $313
• Attorney fees: Varies, but usually $1,000–$2,000 for Chapter 7, and $3,000–$5,000 for Chapter 13

You may qualify for a fee waiver or installment plan if your income is low.

Do You Need a Bankruptcy Attorney in Michigan?

While it’s legal to file without an attorney, known as filing pro se, bankruptcy law is complex, and a single mistake can lead to dismissal.

Benefits of hiring a bankruptcy attorney:

• Ensures correct paperwork and eligibility
• Helps protect your exempt property
• Can represent you in court and negotiations
• Guides you through the means test and exemptions

Michigan has many experienced bankruptcy lawyers who offer free consultations. It’s highly recommended to speak with one before filing.

Common Mistakes to Avoid When Filing for Bankruptcy

To protect your legal rights and avoid delays, avoid these common missteps:

• Transferring assets before filing
• Running up credit card debt right before filing
• Failing to disclose income or assets
• Missing deadlines or required courses
• Filing under the wrong chapter

Honesty, preparation, and legal guidance are key to avoiding these issues.

Life After Bankruptcy in Michigan

Bankruptcy offers a fresh financial start, but rebuilding takes time. Here are some tips for post-bankruptcy recovery:

• Create a budget and track spending
• Open a secured credit card to rebuild credit
• Pay all bills on time
• Avoid high-interest loans or new debt
• Consider working with a financial advisor

Many Michiganders who file for bankruptcy go on to buy homes, start businesses, and build savings—proving that this legal tool can truly change lives for the better.

Final Thoughts: Is Filing for Bankruptcy Right for You?

Filing for bankruptcy in Michigan isn’t a decision to take lightly, but for many, it offers the relief and second chance they desperately need. Whether you’re drowning in credit card debt or struggling to keep your home, understanding the process, knowing your options, and seeking legal help can make all the difference.