- Why File Bankruptcy from Jail
- Why Does Filing Bankruptcy Stop Creditor Collections?
- Can a Michigan Chapter 13 Bankruptcy Be Filed from Jail?
- How Is Filing Bankruptcy from Jail Difficult?
- Filing Bankruptcy from Jail: The Bottom Line
It may seem odd to want to file bankruptcy from jail or prison—but it happens. However, incarceration makes bankruptcy filing a more cumbersome and logistically difficult process.
This Article will discuss why you might still need to file bankruptcy from jail. It will go on to discuss which form of Michigan bankruptcy is more feasible while incarcerated, Chapter 7 vs. Chapter 13 bankruptcy.
Then, the Article will explore the process of the filing bankruptcy from jail and the pinch-points in the process where filing bankruptcy from jail makes everything more difficult than it would be otherwise. For a related article, see my post on Can I go to Jail for Unpaid Debt?
Why File Bankruptcy from Jail
If you’re in jail, you have one big problem, and the rest of your problems no longer matter, right?
Well, this might be true if you’re serving a life sentence with no chance of parole. Otherwise, short of that, the answer is, “No.” Even if you are serving a life sentence in a Federal penitentiary, there are still reasons why you might consider filing for bankruptcy.
What are some of those reasons?
You may not be the only one affected by your unmanageable debt.
If you hold joint debt with a spouse, friend, or another family member, it is important to remember that co-signed or co-borrowed debt is not collected by creditors in any priority order. Contrary to popular misconception, there is no such as thing as being “first on the loan.”
Our Metro Detroit bankruptcy clients convey this thought frequently. “I’m just secondary on that loan,” they claim. This often happens when we locate a debt listed on a client’s credit report that had not been previously disclosed by the client. “It’s not my debt, it’s his,” and so on.
The sad truth is, if you co-signed someone’s debt and they wind up in prison, you’re going to be the one hounded by collection agencies.
You are both “jointly and severally liable” for a co-signed debt in Michigan (and nearly everywhere else). That means that you are both 100% liable. If your co-signor doesn’t pay, you will bear the same brunt of the collections activity that he or she would.
If your co-signor is in jail, that leaves you free and with the deeper pockets for collection.
If you are the incarcerated co-signor, filing bankruptcy from jail will only be half of the solution. Both of you will need to file bankruptcy to completely eradicate that debt liability.
Your Chapter 7 bankruptcy filed from jail will only discharge your liability—not your co-signor’s joint, several liability.
However, depending on your co-signor’s asset and employment circumstances, filing your own bankruptcy from jail can still be very effective.
Protection of Property Outside of Jail
You’re in jail, but how about your stuff?
If you’re only waiting out a 90-day misdemeanor incarceration, that is a relatively short stint—but long enough for bad things to happen to your property and assets outside of jail.
This is especially true if you were already being sued for the collection of a debt before becoming incarcerated.
A money judgment in Michigan can be executed in a number of different ways, including:
- Bank account garnishment;
- Wage garnishment;
- Personal property seizure;
- Judgment lien perfection.
If you were making payments on a car, 90 days is long enough for it to be repossessed when you stop making those payments upon incarceration.
If you’ve missed 3 mortgage payments, a foreclosure process is certainly underway.
The filing of either a Chapter 7 or Chapter 13 bankruptcy in Michigan will immediately halt all collections activity—no matter where the property is located in relation to your person.
Filing bankruptcy from jail will stop garnishment, property seizures, and judgment lien perfection. Repossessions and foreclosures are only temporarily halted by a Chapter 7 bankruptcy.
However, if your incarceration is short-term, the Chapter 7 can still discharge all of your other debt and buy you the time to exit prison in order to deal with the issue by another means.
Garnishment of Prison Wages
Yes, people earn wages in jail. And, yes, those wages can be garnished by creditors holding money judgments against you.
A little goes a long way in prison. The little that you earn from a prison job can really help with amenities, privileges, and trading. If you lose 25% of each pay disbursement to a creditor’s garnishment, as is allowed under Michigan law, the hardship of prison can be even harder.
Filing a bankruptcy from jail will immediately stop a garnishment.
Why Does Filing Bankruptcy Stop Creditor Collections?
Bankruptcy stops creditor collections whether you are in or out of jail because it is a function of Federal law. As such, it “preempts” or halts all Michigan or other state law-based collections, which are largely functions of state law. However, it also, with very few exceptions, also halts Federal collections activity, such as tax collection.
This is because the US Bankruptcy Code (the Federal law in question) contains a provision providing for an “Automatic Stay” of all collection activity upon filing of a Chapter 7 or Chapter 13 bankruptcy case in Metro Detroit or anywhere else.
Any creditor in violation of this Automatic Stay is subject to sanctions and monetary penalties.
Professional creditors know better than to try.
Can a Michigan Chapter 13 Bankruptcy Be Filed from Jail?
A Michigan Chapter 13 bankruptcy is a very different process from a Chapter 7 bankruptcy.
Chapter 7 bankruptcy is a “liquidation” bankruptcy. It is typically a 4-month process that requires, under normal circumstances, only 1 in-person hearing. No repayment to creditors is required. All debt, with just a few exceptions, is totally discharged.
The meaty Chapter 7 questions involve asset ownership, asset value, and the question of whether or not a debtor’s income is low enough to qualify that person for Chapter 7. The question of whether all assets and other required information has been properly disclosed is also highly relevant.
Chapter 13 bankruptcy, on the other hands, is a more involved process. While it is the form of bankruptcy appropriate for those who wish to save a home from foreclosure, it does require sufficient income.
A Chapter 13 bankruptcy is a “reorganization,” or “payment plan,” form of bankruptcy.
In Chapter 13, you make a payment each month to the Bankruptcy Court Trustee, which then disburses those funds out to your creditors in a priority order depending upon what class of debt the creditor holds. Secured creditors, such as mortgage holders, are paid first, with unsecured debt such as credit card balances, back rent, or medical debt paid last.
The crucial component is that monthly payment mentioned above. You must have regular income to file and complete a Chapter 13 bankruptcy.
Prison job wages are “income” for this purpose, but would it be sufficient?
This is something for you to discuss with an experienced Michigan bankruptcy attorney. It will be a discussion that will highly specific as regards any one set of personal circumstances.
Generally, a Chapter 13 bankruptcy would be very difficult to file from jail.
Aside from the need for income and the need for payment of the monthly Chapter 13 plan payment, a Chapter 13 bankruptcy process—especially in Detroit—requires at least 1 more in-person hearing than does the Chapter 7 process.
How Is Filing Bankruptcy from Jail Difficult?
Ordinarily, it is somewhat annoying but, otherwise, not that big a deal to show up for your hearings in a Michigan bankruptcy case.
Yes, it requires that you take time away from work. It requires travel to the Bankruptcy Court in Detroit, Ann Arbor, Flint, Bay City, Lansing, Grand Rapids, Kalamazoo, or Traverse City. You will spend 1-4 hours waiting for and enduring your hearing.
However, that’s all there is to it.
When you file bankruptcy from jail, there are some obvious wrinkles. COVID temporary remote hearing measures aside, you are generally required to appear in-person for bankruptcy hearings in Michigan. If a debtor is incarcerated, the required Bankruptcy .341 Meeting of Creditors can be conducted remotely. As of this writing, all court appearances are being held remotely due to the pandemic.
In order to obtain permission to appear remotely (normally), a motion must be filed with the Bankruptcy Court seeking the Court’s approval. Once granted, the logistics must be worked out between your Michigan bankruptcy attorney and the Chapter 7 and Chapter 13 Trustee.
In either form of bankruptcy, debtors are required to turn over an enormous amount of documentation. This documentation includes:
- Pay stubs and other income documentation;
- Tax returns;
- Bank statements;
- Your spouse’s income documentation;
- Vehicle titles;
- Recorded real estate mortgages and deeds;
- Property tax documentation;
- Homeowners insurance documentation;
- Land contracts;
- Divorce judgments;
- Child support and other support judgments;
- And more.
Clearly, this is stuff that is easier to obtain outside of jail than inside. Typically, bankruptcy attorneys rely on you to gather your own documentation.
Is this possible while incarcerated?
It’s a challenge.
Filing Bankruptcy from Jail: The Bottom Line
The bottom line is that, if you’re considering filing bankruptcy from jail, you need an experienced Michigan bankruptcy attorney to assist with documentation, draft and file the appropriate hearing attendance motions, and, of course, to do everything that bankruptcy lawyers do for their clients in all bankruptcy cases.
Attorney Walter Metzen is a Board Certified Bankruptcy Expert who has successfully represented Chapter 7 and Chapter 13 clients in Metro Detroit for over 30 years.
If you or a loved one is incarcerated and needs to file bankruptcy, contact us now to schedule your free initial consultation.