Many residents of the Detroit metro area might have some vague idea that filing for bankruptcy wipes out debt in exchange for a person's having to go through a court proceeding and then live with sub-optimal credit for a few years. Michiganders might not know, however, which debts get discharged in bankruptcy, and, on a related point, whether a discharge will really improve a person's financial condition.
For example, while a bankruptcy discharges both secured and unsecured debts, a creditor which holds a secure debt, like a house or a car, usually will have the right to come in and take the car or the house back even if the creditor otherwise would have no way of pursuing the debtor. Because most debtors cannot function without a house or a car, the debtor will often simply choose to keep paying on a mortgage or a car payment.
However, at least for car payments, a debtor may have another option that can provide some additional and even unexpected debt relief. Assuming that the person has owned the car for two years and six months, a debtor can, without the creditors consent, demand that the creditor accept the current value of the vehicle as full satisfaction of the debt. Since the value of cars usually goes down, this means that a debtor can effective write off several hundred or even several thousand dollars of debt.
Usually, this technique only works when someone files a Chapter 13 payment plan bankruptcy. While people might think it odd to agree to partial repayment of one's debts over time, Chapter 13 may have other advantages to afford Michigan debtors as well. Detroit residents with questions should seek the advice of an experienced bankruptcy attorney.