- The Usual Michigan Bankruptcy Process (In Brief)
- Detroit Chapter 7 Bankruptcy:
- Detroit Chapter 13 Bankruptcy:
- How The Michigan Bankruptcy Process Differs for Those In the Military
- The Benefits for Military Service Members in the Bankruptcy Process
- Michigan Bankruptcy For Those In The Military: The Bottom Line
Filing for Chapter 7 or Chapter 13 bankruptcy in Michigan is logistically difficult for those in everyday jobs. For those in the midst of military service, it is all the more so—especially when stationed overseas.
While the bankruptcy process does make certain allowances for those serving in the military, those considerations are not a complete waiver of the personal obligations that arise with the voluntary filing of a Chapter 7 or Chapter 13 bankruptcy petition.
This Article will review the “typical” Chapter 7 and Chapter 13 bankruptcy processes in Detroit and elsewhere in the Eastern District of Michigan. It will then go on to describe how that process differs for those in the military, as well as some of the ways that Congress has made it (somewhat) easier for those serving our country.
The Usual Michigan Bankruptcy Process (In Brief)
Here in the Eastern District of Michigan, the bankruptcy process requires much of those seeking to escape unmanageable debt. This is especially true of the Chapter 13 bankruptcy process in Detroit (more on this below).
To file for bankruptcy and to successfully obtain a discharge of your debt, you will, in either Chapter 7 or Chapter 13, be required to:
- Provide your bankruptcy attorney with an enormous amount of financial and property-related paperwork, including tax returns, income documentation, real estate mortgages and deeds, bank statements, and more;
- Meet with your bankruptcy attorney multiple times;
- Review, correct as needed, and sign your bankruptcy petition and statements for filing with the US Bankruptcy Court;
- Attend at least 1 if not multiple Bankruptcy Court hearings in downtown Detroit, Ann Arbor, Flint, or Bay City, depending upon your permanent address.
- In Chapter 13, turn over tax returns, monthly Chapter 13 plan payments, and, in most cases (in Detroit particularly), your annual Michigan state tax refunds.
You will have to constantly monitor your mail, your voicemail, your email inboxes, and your fax machine, if necessary, throughout the process to ensure that creditors are behaving properly. You will need to communicate regularly and in a timely fashion with your bankruptcy lawyer.
In all cases, it’s important to remember that your bankruptcy attorney only knows what you tell him or her and can only respond to creditor activity of which he or she is informed.
You need to be on the ball and vigilant throughout your bankruptcy process, in other words.
That all said, the usual administrative process for each form of Detroit bankruptcy is as follows:
Detroit Chapter 7 Bankruptcy:
- Retain experienced Detroit bankruptcy attorney.
- Follow your attorney’s process and complete his or her intake questionnaires to properly gather and turn over all required financial and other documentation.
- Review the Chapter 7 bankruptcy petition drafted by your lawyer for accuracy. (Remember: you’re signing and filing these documents under penalty of perjury, and bankruptcy fraud is a Federal felony carrying a possible 5-year prison sentence!)
- Enjoy the beautiful silence the day your case is filed—when creditor collection calls immediately cease.
- Appear, around 30 days later, for your required “341 Meeting of Creditors” hearing either virtually or in person depending upon the Court’s COVID precaution status.
- Answer all questions posed to you at the 341 Meeting by your Chapter 7 Trustee and any creditors who appear honestly and accurately.
- Wait mandatory 60-day period from the conclusion of your 341 Meeting to receive a copy of your successful Bankruptcy Discharge Order from your bankruptcy lawyer.
- Leave 5-star Google review for said lawyer!
Note that this approximately 4-months timeline reflects the “normal” or even “ideal” Chapter 7 bankruptcy case.
If you have assets that are worth more than can be “exempted” (protected) by your bankruptcy lawyer in your petition, or if creditors wish to contest your discharge, a Detroit Chapter 7 case can be a much longer and much more convoluted process.
Detroit Chapter 13 Bankruptcy:
- Retain attorney, complete questionnaires, gather documentation, review completed petition, statements, schedules—and Chapter 13 Payment Plan—as described above.
- Enjoy creditor silence upon filing as described above.
- Appear at the 30-day mark for a 341 Meeting of Creditors, as described above.
- In Detroit cases, await the inevitable filing of “objections to the confirmation of your Chapter 13 Plan” sometimes by creditors—always by the Chapter 13 Trustee.
- In Flint or Bay City cases, you may receive no such objections
- Actively assist your bankruptcy attorney in resolving any such objections by responding to phone-calls and emails promptly, turning over further documentation as required, reviewing and signing amended pleadings as needed—and anything else your lawyer requests from you.
- If all objections to confirmation are resolved, your Chapter 13 Plan is approved (“confirmed”) without the need to appear for a hearing.
- If they are not, a “confirmation hearing” will be required to obtain judicial approval of your Plan. (If it is not approved, your case will be dismissed at this point.)
- After “Confirmation,” you turn over tax returns annually to your Chapter 13 Trustee for the next 36-60 months.
- Timely and in the full and correct amount turn over monthly Chapter 13 Plan Payments to your Chapter 13 Trustee for 36-60 months.
- Turn over Michigan state tax refunds as required (especially in Detroit).
- Stay in communication with your bankruptcy lawyer and immediately inform him or her of any changes in your income, employment status, marital status, regular monthly expenses, and so on.
- Work with your attorney to draft and file modifications of your Chapter 13 Plan as needed, depending on the above changes in circumstance.
- Eventually, make your last payment, turn over your last tax return and refund—and obtain your discharge.
- Leave your very hard-working bankruptcy attorney that well-deserved 5-star Google review as described above!
Again, this process describes a successful Eastern District of Michigan Chapter 13 bankruptcy process.
So how is any of this different for military service members?
How The Michigan Bankruptcy Process Differs for Those In the Military
You can logically deduce from the above run-down a number of points where complying with your requirements as a Michigan bankruptcy debtor would be more difficult if you were engaged in active-duty military service.
Below are a few points of departure from the above-described bankruptcy process, or additional considerations required of those in the military wishing to file for bankruptcy in Michigan.
Where Do You File Your Case?
Bankruptcy is a Federal legal process. It is not a State of Michigan legal process.
The hearings that you attend, therefore, will not be in your local courthouse in Dearborn Heights or Eastpointe or elsewhere. Nor will they be held, even, at the Wayne County or Oakland or Macomb County Courthouses. Again—those are Michigan State courts.
Your case will be filed in 1 of the 2 Federal judicial districts that bisect Michigan, the Eastern or Western District Bankruptcy Courts.
If you live in Ingham County westward, you’ll be in the Western District Bankruptcy Court jurisdiction. This includes Lansing, Kalamazoo, Grand Rapids, Traverse City, and so on.
Eastward of Ingham County, you’ll be in the United States Bankruptcy Court for the Eastern District of Michigan, including Detroit, Ann Arbor, Monroe, Flint, Saginaw, and Bay City.
If you’re in the military, the question will be where your address of permanent residence lies. You may have an APO mailing address, but every military service member (usually, anyway) also maintains a permanent residence address.
This will be the address on your driver’s license. This is where you file your bankruptcy case.
Thus, while you may be stationed at Ft. Benning in Georgia or even at Incirlik Air Base in Adana, Turkey, your driver’s license may be for an address in Warren, Michigan. That address may be your own actual permanent residence—or a parent’s home.
But that address will determine your Federal bankruptcy “venue,” or jurisdiction. If your permanent address is in Livonia, in Wayne County, you will file in the Eastern District of Michigan. Your hearings will be held at the Bankruptcy Court in downtown Detroit (unless virtual).
How To Attend Bankruptcy Hearings While Active-Duty Military?
This is one aspect of filing bankruptcy while serving in the military that has actually been made easier by the COVID pandemic.
Prior to the onset of COVID, all documents were required to bear “wet signatures” (actual signatures) in the Eastern District of Michigan Bankruptcy Court. All debtors were required to personally attend 341 Meetings and Confirmation Hearings, if not every other type of hearing possible.
When COVID set in, the Bankruptcy Court and the United States Trustee’s Office relented in their insistence on forcing the practice of bankruptcy law to remain rooted in the 19th Century.
Currently, as of this writing, nearly all Michigan bankruptcy hearings are being held virtually, via Zoom or other such means, and the US Trustee has at last allowed signatures on petitions and other documents to be applied via DocuSign or other such e-signature processes. (The State Bar of Michigan had already blessed this practice years and years ago—but not the US Trustee’s Office in Detroit!)
Should these COVID precautionary measures be lifted, military service members could, again, be required to either fly back to Michigan to attend hearings or Fed Ex signed documents back and forth as in the pre-COVID period.
The only relief for such hardship, then, was the filing of a separate motion by a service member’s bankruptcy lawyer seeking excusal from the personal appearance requirement and/or the cooperation of an understanding Chapter 7 or Chapter 13 Trustee in making alternate arrangements, once such an order excusing appearance was granted.
Such motions were routinely granted by the Court, but the need for it provided one more level of complication to Michigan bankruptcy cases.
If personal appearance is not possible even virtually due to the nature of one’s overseas service (active duty in a war zone, etc.), such measures would still be required.
Are There Security Clearance Issues for Military Service Members in Bankruptcy?
Concerns for security clearance maintenance are of special interest to active duty military service members.
Will bankruptcy negatively affect your security clearance?
This is a very fact-specific question that you should discuss with your Michigan bankruptcy attorney in a private consultation. The answer will depend on you, your role in the military, your particular clearance, and a host of surrounding factual circumstances specific to you.
That said, it is generally the case that honest and timely disclosure of a bankruptcy filing will not result in a negative effect upon security clearance. Failing to disclose the bankruptcy filing or entirely falsifying the response to a security clearance questionnaire about bankruptcy filings will certainly do you no good whatsoever.
The fact that someone has filed for Chapter 7 or Chapter 13 bankruptcy is the easiest thing in the world for someone conducting your background check to discover.
Further, overwhelming debt and financial liability is, itself, often seen as a security risk to those conducting clearance background checks. It is possible that eliminating that debt (and possible vulnerability to bribery, etc.) will be seen as a positive step for clearance purposes.
However, again: consult an attorney to discuss this concern privately.
The Benefits for Military Service Members in the Bankruptcy Process
Means Test Safe Harbor
The Bankruptcy Means Test will not be explained in great detail here. However, in short, it is a document filed with the Court accounting for all gross household income earned in the 6 months prior to the filing of a bankruptcy case. It averages that income and determines if the debtor is “above average” or “below average” in terms of the median income in Michigan for households of the debtor’s size.
If the Debtor is “below average,” he or she is eligible to file Chapter 7 bankruptcy or to file a 36-month Chapter 13 plan.
If the Debtor is “above average” or “over-median,” he or she must file a Chapter 13 bankruptcy and will be required to file a 60-months Chapter 13 Plan.
The Means Test offers a couple of “safe harbors” to certain types of debtors. “Safe Harbor” simply means that certain debtors do not need to complete a Means Test and can simply file for Chapter 7 bankruptcy so long as no “bad faith” issues are present (discuss this with your bankruptcy lawyer!).
One of these safe harbors is for Active Duty Service Members engaged in Homeland Defense activities.
Within this safe harbor, if you file for Chapter 7 bankruptcy during your term of duty or within 540 days of completing your service, you do not need to complete the Means Test.
There is, additionally, a safe harbor for disabled veterans whose indebtedness occurred while on military duty.
The Servicemember’s Civil Relief Act (SCRA)
This non-bankruptcy Federal statute, dating back to 1940 in present form, shields active duty military service members from certain forms of debt collection activity.
For example, in Michigan, every district court will require a landlord to check a box on an eviction complaint and judgment affirming that the tenant being evicted is not an active duty service member.
This is not a bankruptcy measure, but it remains a key advantage for those in the military considering bankruptcy.
It is often the case that the timing of the filing of a bankruptcy, for a variety of reasons, is one of the most important strategic decisions you will discuss with your lawyer.
Having some protection from debt collection while you await the optimal filing date is no small thing for a military service member.
Michigan Bankruptcy For Those In The Military: The Bottom Line
The bottom line is that you can indeed file for Chapter 7 or Chapter 13 bankruptcy in Michigan while serving in the military.
However, it is a fact that your case will be slightly more complicated for you than for the guy down the street who sells vacuum cleaners for a living. At the same time, your case will be nothing that an experienced Detroit bankruptcy attorney cannot make easier for you, every step of the way.
Attorney Walter Metzen is a Board Certified Bankruptcy Expert who has successfully represented thousands of Metro Detroit Chapter 7 and Chapter 13 Clients, both in the military and out, for over 30 years.
Contact us now to schedule your free consultation.