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The filing of an “emergency” bankruptcy petition in Michigan is possible. However, it should never be the default option of any debtor.
The filing of an “emergency” bankruptcy petition in Michigan is possible. However, it should never be the default option of any debtor.
The filing of a Chapter 7 or Chapter 13 bankruptcy case is not simple “form-filling” as many believe to be the case. It is a complex legal process requiring the disclosure of a large amount of personal financial and other information to a US Federal Court—and a lot of documentation proving the accuracy of that information.
That being the case, filing a bankruptcy in a hurry is not an easy matter. Nevertheless, from time to time, it must be done.
The filing of a Chapter 7 or Chapter 13 bankruptcy triggers a Federal injunction known as the “Automatic Stay against Collections” (or “the Automatic Stay”) which requires that creditors cease and desist all collections activity against the filing debtor.
Thus, filing a bankruptcy case is often required to be filed for just this effect: to stop a foreclosure, stop wage garnishment, stop a collections lawsuit, stop vehicle repossession or other property seizure.
The filing of a bankruptcy case can do a lot for a Metro Detroiter ensnared in overwhelming debt—but you have to file it to obtain those advantages and the relief they bring.
What Documentation Is Normally Required for Michigan Bankruptcy
Generally, obtaining documentation and information from clients is a big challenge for bankruptcy attorneys.
In order to accurately draft the required Voluntary Petition for Bankruptcy, Bankruptcy Schedules, Statement of Financial Affairs, Means Test, Chapter 13 Plan, and other required forms, a bankruptcy attorney must have, from the client, all of the information and documentation necessary to accomplish this task.
The majority of experienced bankruptcy attorneys in practice require clients to complete a lengthy bankruptcy intake questionnaire. This questionnaire can be anywhere from 40-100 pages long, depending on the particular lawyer’s needs (and the particular client’s personal situation). It will ask the client to provide details of asset ownership, asset values, debts owed of various types, monthly average income and expenses, financial and other transactions engaged in for as long as 10 years prior to the current date—and more.
The US Bankruptcy Code, the Federal Bankruptcy Rules of Procedure, Local Court Rules, the US Trustee’s Office, and Michigan Bar Association ethical rules all require that bankruptcy attorneys disclose, on behalf of their clients, all information required to be disclosed—and that all disclosures are accurate and truthful.
Information filed with the US Bankruptcy Court in a bankruptcy petition or related schedule or form is subject, further, to penalties of perjury—for everybody involved.
Nevertheless, bankruptcy attorneys only, for the most part, know what their clients tell them.
Therefore, it is incumbent upon the client to provide all of the information and supporting documentation necessary to ensure that all of the above is properly accomplished.
This is not to say that doing so is much fun for the client.
Or that it is easy to accomplish quickly—all while raising kids, working a full-time job, and doing everything else that one must do in life.
Nevertheless, to get the case filed, below is some of the documentation typically required from bankruptcy clients:
- 2-4 years’ worth of Federal and State Tax returns.
- 90 days’ worth of bank statements.
- Business ownership documentation.
- Valuation documentation for real estate, vehicles, stock and annuity ownership, collectibles, and other property.
- 401(k) and other retirement account statements.
- Whole life insurance policies.
- 6 months’ worth of income documentation for all household members.
- Divorce judgments and support orders.
- Vehicle titles.
- Real estate deeds.
- Rental leases.
- Expense support documentation.
- Creditor bills, collection notices, lawsuit complaints and judgments.
And more.
Not to mention your bankruptcy lawyer’s questionnaire.
A few potential Chapter 7 and Chapter 13 bankruptcy clients manage to get all of this together in a succinct timeframe—but not many. Some even take months.
But what if you don’t have months before losing your home or 25% of your next paycheck?
That’s where an “emergency” bankruptcy filing comes in.
Emergency Bankruptcy Filing: When Time Is of the Essence
An emergency Chapter 7 or Chapter 13 bankruptcy is the filing of an incomplete bankruptcy case simply for the purpose of putting the Automatic Stay injunction in place and halting ongoing collections activity.
This is an established process that is, on statistical level, not uncommon in the Eastern District of Michigan. It is, on the other hand, a process that carries some considerable risk for you.
What Is Included In An Emergency Bankruptcy Filing?
An emergency bankruptcy filing is, as noted, a partial bankruptcy filing. In an emergency bankruptcy filing, only some of the required documents are filed with the court.
The documents that must be included to complete even an emergency bankruptcy filing are:
- Voluntary petition;
- Bankruptcy Schedules D/E/F (i.e, your list of creditors);
- Schedule H (your list of Co-Debtors);
- Statement of Your Social Security Number;
- Certificate of Completion of Pre-Filing Credit Counseling Course;
- Creditor Matrix (the “mailing label” list of your creditors).
In addition, the appropriate Chapter 7 or Chapter 13 bankruptcy filing-fee must be paid to the Bankruptcy Court.
What Are the Risks of Filing an Emergency Bankruptcy Case?
There are a number of risks inherent in the filing of an emergency bankruptcy case.
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Risk of Case Dismissal
The first risk of an emergency bankruptcy filing is that your case will be quickly dismissed because you fail to file the remainder of the required petition documents within a required timeframe.
When you file an emergency bankruptcy case, you have 14 days to file the remainder of the documentation. If you miss this deadline—case dismissed.
While it is possible for your bankruptcy lawyer to file a motion requesting an extension of this deadline, some good cause must be alleged (and proven, as needed). “I was too busy” or “I didn’t feel like working faster” will not be valid reasons for your judge to grant this extension request.
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Risk of Asset Seizure
When an emergency bankruptcy case is filed, it is often filed before you have fully completed your bankruptcy attorney’s (lengthy) client questionnaire.
In particular, it is often filed before you have completed the questionnaire’s list of your assets and their values. (Note that Schedules A and B—in which your real estate and personal properties are listed and valued—are not required to be filed in an emergency bankruptcy case.)
This being the case, how do you know that your lawyer has been able to fully exempt and protect your assets from seizure and liquidation by a Chapter 7 Trustee, if you are filing an emergency Chapter 7 case?
Short answer: You don’t.
A smart bankruptcy lawyer will either not file any emergency bankruptcy cases for clients at all as a matter of office policy or will only file ALL emergency bankruptcy cases as Chapter 13 bankruptcies and not as Chapter 7 bankruptcies at all. No matter what the ultimate intention is.
This is because assets are never liquidated in Chapter 13. Further, a Chapter 13 bankruptcy be dismissed voluntarily by the debtor at any time, whereas a Chapter 7 can only be dismissed by order of the court upon a motion to dismiss (often opposed successfully by Chapter 7 Trustees). Likewise, a Chapter 13 bankruptcy can be converted to Chapter 7 at any time by the filing debtor. A Chapter 7 can only be converted to Chapter 13, again, upon order of the court in response to a motion.
An emergency Chapter 7 bankruptcy filing can be a recipe for complete disaster if you own valuable assets.
It can also be a recipe for malpractice allegations for your bankruptcy lawyer.
This being the case, if you express an interest in filing an emergency Chapter 7 bankruptcy case to your lawyer, don’t be surprised if he or she expresses some skepticism—or complete disinterest. This is not an indication that you’ve found an unhelpful attorney.
It is an indication that you’ve found a competent bankruptcy attorney who is not just trying to make a quick buck.
Emergency Bankruptcy Filing: The Bottom Line
While emergency bankruptcy filings do have their place, this will be particularly true in the context of a case meant to be filed as a Chapter 13 and with the intent that it remain a Chapter 13.
This sets in place the Automatic Stay, stops whatever foreclosure or other collection activity is underway—and yet gives you time to complete the even more extensive paperwork required and your attorney time to draft a quality Chapter 13 payment plan.
However, even in Chapter 7 cases, the emergency bankruptcy filing is occasionally appropriate—at the discretion of your attorney. If not advisable, your best bet for quick debt relief is to simply work a little harder and faster at completing that questionnaire and gathering your documentation properly.
Attorney Walter Metzen is a Board Certified Bankruptcy Expert who has successfully assisted Metro Detroit Chapter 13 and Chapter 7 bankruptcy clients for over 30 years.
If you are considering filing for bankruptcy, contact us now to schedule your free, initial consultation.
