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Most businesses don’t realize exactly when they stop operating like a startup and start functioning as an established organization. There is no announcement, no line on the calendar. The shift usually happens quietly, often right around the time the company prepares to bring on its tenth employee.

Most businesses don’t realize exactly when they stop operating like a startup and start functioning as an established organization. There is no announcement, no line on the calendar. The shift usually happens quietly, often right around the time the company prepares to bring on its tenth employee.

Why focus on ten employees? There is no federal employment law that suddenly takes effect at the ten-employee mark. 

The significance is practical, not statutory. Once a business grows beyond a handful of people, informal management stops working. Founders are no longer part of every conversation, decisions are made without shared assumptions, and small inconsistencies can create real legal exposure. Wage and hour issues become harder to monitor, confidentiality risks expand, and HR complaints often appear for the first time when a business reaches eight to twelve employees. 

In short, ten employees is the point where a company becomes complex enough that written policies move from optional to essential.

At this stage, a founder’s instincts and a few verbal ground rules are no longer enough to keep people aligned. Employees begin making decisions without the benefit of overhearing the leadership team. Departments form, roles blur, misunderstandings multiply, and the business faces risks that did not exist when four people shared a room and improvised their way through the day.

This is the moment, before employee number ten walks through the door, when every small business should put three foundational policies in writing. The goal is not to become “corporate.” The goal is to preserve stability, fairness, and clarity as the company grows.

1. A clear, modern employee handbook. (Because “we talked about it once” is not a policy)

Many small-business owners believe they do not need a handbook because “everyone knows how we operate.” 

That may work for the first few employees who learned the business while sitting next to the founders. Once the company reaches ten employees, people no longer learn by osmosis.

A strong handbook does not need to be lengthy. It should clearly address the issues that most often create tension, including:

• How employment works, including an at-will statement;

• Standards of conduct and what will not be tolerated;

• How performance concerns and complaints are handled;

• Attendance, scheduling, and time-tracking expectations;

• Technology and cybersecurity requirements;

• How time off actually works;

• A simple, safe process for raising concerns without retaliation.

The value of a handbook is not the document itself. It is the consistency it provides. When a difficult situation arises and an employee insists “no one ever told me that,” the handbook becomes your record, your clarity, and your protection.

2. A robust confidentiality and trade-secret policy (Because your business is worth protecting long before you are big enough to defend it)

Every business has information someone else would love to access. This includes customer lists, pricing strategies, sales processes, vendor relationships, product formulas, software code, operational methods, and market positioning plans.

Small companies are particularly vulnerable because they often rely on trust and informality. 

Courts, however, do not protect trade secrets based on trust. They protect them based on the steps a company takes to keep information confidential. If you do not treat something as proprietary, you cannot credibly object when someone walks out with it.

A well-drafted confidentiality and trade-secret policy defines what is confidential, who may access it, how it must be handled, and the consequences for misuse. It also provides a legal foundation for action if an employee attempts to take shortcuts or a competitor tries to capitalize on your work.

With non-compete agreements rapidly disappearing across the country, this policy has become one of the few remaining tools available to safeguard a business’s competitive advantage.

3. A Code of Conduct that reflects your culture (Not a generic list of corporate clichés)

Culture is what keeps a small business cohesive during growth. When the team is tiny, everyone absorbs the founder’s values simply by being in close proximity. As the company expands, that shared understanding disappears unless someone puts it in writing.

A Code of Conduct is your blueprint for how people interact. It should not sound like a template pulled from a corporate HR manual. It should reflect your voice and express the norms you expect your team to follow.

A practical and meaningful Code of Conduct addresses:

• Expectations around communication;

• Standards for professionalism and respect;

• How disagreements should be approached;

• When and how decisions are escalated;

• What accountability looks like;

• What “respecting the team” means in your environment.

This is not about micromanaging. It is about giving new hires a clear path to success, reducing unnecessary friction, and preserving the culture you worked hard to build.

Why these policies matter before you reach 10 employees

Crossing the 10-employee threshold signals three major chances:

1. Legal exposure expands quickly. Each new hire brings additional HR, wage-and-hour, and confidentiality risks.

2. Culture becomes more fragile. A single new employee can shift the identity of a small business.

3. Consistency becomes essential. What once felt like flexibility can quickly be misunderstood as favoritism or unfairness.

These policies create the guardrails that allow a company to grow without losing stability. They protect your brand, your people, and the business you have worked so hard to build. 

I have worked with many companies that waited until a crisis forced them to put policies in place. Every one of them later said the same thing: “We should have done this earlier.” The businesses that thrive are the ones that prepare before the pressure hits. Employee number 10 is your early warning bell. Put these policies in place now, and your future self will thank you.

The first two commentaries focused on Benjamin Franklin. This commentary will discuss an individual well known to Colonial leaders but less familiar in the present day: David Rittenhouse (1732-96). 

This is the third commentary in a series describing the perspectives of the Founding Fathers on “thinking like a scientist.” 

The first two commentaries focused on Benjamin Franklin. This commentary will discuss an individual well known to Colonial leaders but less familiar in the present day: David Rittenhouse (1732-96). 

Rittenhouse was “America’s Newton.”  A child genius and the son of farmers, Rittenhouse received only a basic education and thereafter self-taught.  At age 13, he mastered Newton’s calculus as well as the laws of gravity and motion.  

Rittenhouse would go on to construct models of paper mills, then working clocks, tools and as an adult, scientific instruments including two orreries – mechanical scale models of the Solar System – still in existence at Princeton and the University of Pennsylvania.

Rittenhouse’s report on the transit path of Venus in 1769 brought international fame as an astronomer.  The telescope he utilized to make the detailed observations was of his own making.  

An Oration “Promoting Useful Knowledge” that Rittenhouse delivered in February 1775 to the American Philosophical Society, which was originally founded by Benjamin Franklin, is the focus of this commentary.  

The Oration was later published in a pamphlet addressed to the delegates of the Continental Congress “to whom the future liberties and, consequently, the virtue, improvement in science, of America are entrusted.”  Each delegate received a personal copy.

The Oration is of value today because it presents Rittenhouse’s views – in his own words - of what it means to “think like a scientist.”

 Excerpts are set forth below. The headings are mine; the quoted text is from the Oration with guidance as to context and particular terms in brackets.

On the Relationship of Scientific Discovery to Religion  

“As truth is always consistent with itself, so many new proofs were furnished from time to time by new discoveries, that a mistaken interpretation of some passages in the Bible was compelled to give way to the force of astronomical evidence.

“Our religion teaches us what Philosophy could not have … But neither Religion nor Philosophy forbids us to believe that [the creator’s] infinite wisdom and power … may have frequently interposed in a manner quite incomprehensible to us, when [understanding] became necessary to the happiness of created beings.”

Implications with Respect to Other Worlds  

In the middle section of the Oration, Rittenhouse notes that advances in astronomy may include the discovery of planetary life elsewhere in the universe. He cleverly uses that possibility as a springboard to address several “hot-button” political issues.  

“How far indeed the inhabitants of the other planets may resemble man, we cannot pretend to say … If their inhabitants resemble man in their faculties and affections, let us suppose that they are wise enough to govern themselves according to the dictates that reason their creator has given them … Happy people!”

Rittenhouse then pivots to note that from the perspective of this “happy people,” existing governments on earth lack similar wisdom and proceeds to provide examples.

On Slavery and Racism

First, Rittenhouse speculates that “inhabitants of the other planets” may be “more happy still, that all communication with us is [currently] denied.  We have neither corrupted you with our vices nor injured you by violence …  None of your sons and daughters, degraded from their native dignity, have been doomed to endless slavery by us in America, merely because their bodies maybe disposed to reflect or absorb the rays of light, in a way different from ours.”

On Greed

Second, citing additional benefits resulting from the separation of worlds, Rittenhouse notes that “you [inhabitants of other worlds] are [also] effectively secured, alike from the rapacious hand of the haughty Spaniard, and of the unfeeling British nabob. Even British thunder [canons] impelled by British thirst of gain, cannot reach you.” [“British nabob” was a pejorative reference to “a conspicuously wealthy individual returning from India with a fortune.”]

On Luxury and Tyranny

As an example of “tyrannical” government actions on earth, Rittenhouse next cites the highly contentious British colonial acts, such as the Stamp Act.

These Colonial rules required Americans to import high-priced “luxury” goods through Britain rather than manufacture or obtain them elsewhere. 

They were then the subject of the incendiary colonial protests and boycotts that would spark the Revolutionary War only two months after the Oration was first delivered.

“Luxury and tyranny …  pretend at first to be the patrons of science and philosophy, but at length fail not effectively to destroy them; agitated by these reflections, I am ready to wish that nature would raise her everlasting bars between the new and old world; and make voyage to Europe as impracticable as one to the moon … Let our harbours, our doors, our hearts, be shut against luxury.”  

The Benefits of Science

In closing, Rittenhouse turns “to consider [the] happy effects of science, on the human mind … it is of great service to mankind, in banishing bigotry and superstition from amongst us … to dilate the heart with universal benevolence, and to enlarge its views.  

[Science] does this without propagating a single point of doctrine contrary to common sense, or the most cultivated reason. It flatters no fashionable princely vice, or national depravity. It encourages not the libertine by relaxing any of the precepts of morality.” 

Rittenhouse’s ambitions for science to have a central role in transforming American life were reflective of Revolutionary times.   

Historians suggest his idealism and optimism, in fact, influenced the selection of a circle of thirteen stars in the republic’s first flag symbolizing American democracy as a “new Constellation” in the progress of humankind.

Law, it seems, is changing rapidly at the state and federal level. It can be difficult to keep up with the transformation of entire areas of substantive law. There is a kind of reordering of things, which includes revisiting established precedents to correct perceived legal errors in prior rulings. 

Law, it seems, is changing rapidly at the state and federal level. It can be difficult to keep up with the transformation of entire areas of substantive law. There is a kind of reordering of things, which includes revisiting established precedents to correct perceived legal errors in prior rulings. 

The Michigan Supreme Court has distinguished itself nationally by taking a measured approach. Although the justices are popularly elected, the Court doesn’t appear to be actively looking for ways to take up controversial issues. The Court has shown a willingness to reexamine precedent, however. 

One case the Court should look at is Nehra v. Provident Life and Accident Company, 454 Mich. 110 (1997) involving the interpretation of disability insurance contracts for professionals like surgeons. 

If the case sounds unfamiliar, it is. 

Even seasoned Supreme Court advocates hadn’t heard of it. Nehra is rarely cited and even more rarely followed. Most cases that cite it, distinguish it. 

Nehra is a decision that proves again the old adage that ‘bad facts can make bad law.’  The problem with Nehra – in addition to being a bad decision – is that it serves to undermine the long-term financial security of professionals in certain industries, particularly medicine. 

In Nehra, the plaintiff, a dentist, filed an insurance claim with his long-term disability insurance carrier. His policy provided coverage in the event he could not regularly perform his specific occupation — dentist — if he became ill or he had suffered “injuries.” 

The issue in Nehra centered on what constitutes an “injury” in a disability insurance contract. The contract in Nehra states that the term “injuries” means “accidental bodily injuries occurring while your policy is in force.”  As contrasted with the term “sickness,” which under the contract “means sickness or disease which is first manifested while your policy is in force.” The contract did not define the term “accidental bodily injuries.” Nehra, 454 Mich. at 112.

In his application, the plaintiff listed “bilateral carpal tunnel syndrome” as being one of the causes of his disability along with “duodenal ulcer with hemorrhage.” His claim was approved, and he began collecting benefits. 

The decision suggests that Nehra had not realized that his disability contract made a distinction regarding the cause of his disability. Under the contract, if his disability were a “sickness,” his monthly benefits would end at age 65. If his disability stemmed from “injuries,” on the other hand, he could receive benefits over a lifetime. 

After collecting benefits for years, Nehra attempted to change the cause of his disability to “injury” from “sickness.” Nehra argued that his diagnosis of carpal tunnel syndrome was the result of a series of repetitive motion injuries that qualified him for the lifetime benefit under the “injuries” provision of his contract. The medical record on this point was seemingly underdeveloped.

Nehra’s claim was denied, and a lawsuit followed. The trial court dismissed his case, but the Michigan Court of Appeals reinstated it, finding there was an issue of fact as to the cause of Nehra’s disability. From there, the Supreme Court granted leave and reversed the Appeals Court reinstating the dismissal. 

The Supreme Court reasoned that the case was governed principally by two statutes that have nothing to do with disability insurance. 

First, the Supreme Court looked to the provisions of the Worker’s Disability Compensation Act to determine the meaning of the word “injury.”  The Court also looked to Michigan’s No-Fault Act to determine the meaning of an “injury.”  

The concept of a repetitive motion type injury was not supported by the Court’s reading of either statute. The Court found that an “injury” was a precipitating event that led to the claimant’s condition, not a pattern of micro-injuries over a sustained period of time.

Other courts have rejected this analysis. One federal court wrote that it had never heard of a “repetitive motion sickness.” Chapman v. Unum Life Ins. Co. of America, 555 F. Supp. 3d 713, 724 (D. Minn. 2021).

Nehra is not a particularly strong or persuasive decision, and upon closer examination, its underlying analysis is flawed. 

Both the Workers Compensation Act and the Michigan No-Fault Act are statutes that regulate mandatory insurance systems. The two statutes cited mandate that individuals and businesses purchase specific forms of insurance, and the cited laws create a uniformity among huge segments of the state’s population. 

A private disability contract is a contract that is voluntary and its purchase is discretionary. The terms that govern the contract are between the two contracting parties, and Michigan does not regulate the definitions that appear in a disability insurance contract. 

The Nehra case is an outlier and makes little sense in our modern, professional world. 

Here’s an example. Nehra is routinely cited to try to defeat the legitimate claims of surgeons who have suffered spinal injuries during the practice of their profession. Surgeons experience a significantly higher rate of spinal problems compared with the general population. 

By some estimates, nearly 75% of all surgeons suffer from back problems. Some surgical specialties have a rate of spinal injuries as high as 65% of the entire occupational category. And this is a growing trend. 

With the consolidation of medical practices, the specialization of surgical practices, and increased patient need, surgeons are seeing their caseloads increase. The more surgeons work, the greater the risk of injury to their own spines. 

Compounding matters, surgeons work in physical positions where their bodies are contorted for long periods of time; further, they are required to wear equipment necessary to perform surgery, including magnetic loupes and heavy, protective lead aprons. 

Collectively, this contributes to putting pressure on the neck and back and often results in spinal injuries over time. Undoubtedly, their medical conditions are caused by “injuries,” not illnesses.  

Nehra is a little known, rarely cited case; yet, it increasingly hangs out there as an impediment for legitimately disabled medical professionals within our state who entered into expensive disability contracts in the good faith understanding that their injuries (not just narrowly defined ones), would be covered. 

Nehra is not good law, comparatively speaking, and serves little purpose to continue. The Michigan Supreme Court should give it another look and consider overruling it. 


______________________

John Joseph (J.J.) Conway is an employee benefits and ERISA attorney and litigator and founder of J.J. Conway Law in Royal Oak.

Activists are collecting signatures for a proposal, possibly for a November 2026 vote, that would amend the state constitution to add a new rate in the state income tax. This would give Michigan the seventh-highest rate in the country; fourth-highest if you include Detroit’s city income tax.

Activists are collecting signatures for a proposal, possibly for a November 2026 vote, that would amend the state constitution to add a new rate in the state income tax. This would give Michigan the seventh-highest rate in the country; fourth-highest if you include Detroit’s city income tax.

It would also do serious damage to Michigan’s already frail economy by hurting businesses and punishing job creators. But there are more than just practical reasons to oppose a select tax hike. The proposal would violate basic constitutional principles that ought to matter to all of us.

The proposal would raise the state’s income tax rate from 4.25% to 9.25% for single taxpayers who earn more than $500,000 and for joint filers who earn more than $1 million. It’s a small number of people, around 18,300 households, according to the latest figures from the Internal Revenue Service. That’s only around 0.3% of all tax filers in Michigan.

These taxpayers would pay 48.65% of what they earn, split among federal, state and local governments. It’s downright un-American to tax half of what someone earns.

This small number of taxpayers has a large effect on the state economy. The bulk of high earners in Michigan are not movie stars or athletes. They’re business owners. High-earning households claim 90% of the flow-through credits available when business owners pay taxes through Limited Liability Companies, S-corporations and other partnerships. And they pay 33% of the self-employment taxes. They wouldn’t pay $1.5 billion in income taxes on their businesses — equivalent to 15% of the total income taxes — if they didn’t employ a lot of other people in Michigan.

A confiscatory tax will scare a lot of business owners out of the state, and cause more hesitation about moving here. That ought to be enough to get people to realize that the proposal is bad policy. Still, there are broader reasons why they should oppose select tax hikes. It’s just not how taxes should work in a government run for the public’s benefit.

The government is supposed to do only things that people think serve the public. That includes right now a number of charitable activities — helping people who need it afford food and medical care — and also everything else the state does. The state government ensures education for all children in the state, it enforces state law and incarcerates criminals, it keeps and maintains a system of public rights-of-way and more. This costs money. Taxes are supposed to be the acceptable way to pay for services that elected officials have decided will 
benefit the public.

That’s not to say that everything the state does justifiably serves public purposes. The state’s ineffective business subsidies are a waste of money and serve private purposes rather than the public interest. Pork projects go to serve local and private purposes rather than the people of Michigan, a point we’re arguing in court.

Taxes levied on the public for the public good have to be levied in fair ways, and that means they have natural limits. “There are certain limitations upon this power,” Michigan Justice Thomas Cooley noted, “not prescribed in express terms by any constitutional provision, but inherent in the subject itself.” That is, the taxes levied by governments are subject to rules beyond those in the state and federal constitutions.

One of those rules is that taxes must be apportioned fairly, and not, as Cooley wrote, “arbitrarily or by caprice, so that the burden may be made to fall with something like impartiality upon the persons or property upon which it justly and equitably should rest.”

The tax hike proposal unjustly picks out a segment of the population and levies punishing taxes on them. “Fund Schools. Tax the Rich. Protect the Democracy,” its advocates proclaim. This view suggests that a small segment of the population harms the state and must be punished with taxes.

(Schools in Michigan already get an average of $23,700 per student from federal, state and local funding, by the way.)

Tax policy should be about fairly and equitably raising money for government services. It should not punish a small number of people for their success. 

The proposal would harm the state’s economy, but it also violates basic principles of fairness and should rub all Michigan earners the wrong way.


James M. Hohman is the director of fiscal policy at the Mackinac Center for Public Policy.

This is the second commentary in a series first describing the Founding Fathers’ perspectives on “thinking like a scientist” and second comparing those perspectives with present-day government actions and policy.

This is the second commentary in a series first describing the Founding Fathers’ perspectives on “thinking like a scientist” and second comparing those perspectives with present-day government actions and policy.

The focus of the prior commentary was on Benjamin Franklin’s introduction to scientific thinking while he was an apprentice printer at his brother’s newspaper. The paper covered the Boston smallpox epidemic of 1721 and the controversy and startling success of experimental smallpox vaccinations. 

From that event Franklin learned the value of not fearing experimentation where potential benefits outweigh risks, of keeping an open mind during crisis, and to preferring facts over conventional dogma in decision-making.   

This commentary focuses on the scientific lessons Franklin learned through his experiments with the properties of electricity.

Chapter four, titled “The Bolt from the Blue” of Tom Shachtman’s 2014 book “Gentlemen Scientists and Revolutionaries,” outlines Franklin’s experiments. 

Franklin received little formal schooling and no training as a “scientist” as the term did not exist in the English language until 1833. Nonetheless, at an early age, Franklin demonstrated a consuming desire to learn how things work and to improve his station through self-taught education.

That drive and his ingenuity served him well when he began his own printing business at age 17 in Philadelphia. The business succeeded, and as he prospered, Franklin dedicated more of his time to inventing.  

Lacking familiarity with the advanced mathematics that enabled Issac Newton to prove his grand exposition of the planetary and natural world, Franklin used experiments as his method of proof. Although not by name, Franklin practiced the “Scientific Method.” He carefully observed, saw patterns and possible explanations then devised experiments to test theories. He would refine and perfect experiments until identifying a solution that could be proven by successful repetition.  

Based on the forces of attraction and repulsion exhibited by magnetized lodestones, Newton posited that those two forces comprised the “basic components of electric force.” He was wrong. Nevertheless, for decades natural philosophers fruitlessly sought to prove Newton’s “two-fluid theory” of electrical force: attraction and repulsion, which they termed “vitreous” and “resinous.” 

Guided by the results of experiments, Franklin in 1747 proposed a “single-fluid-that-seeks-equilibrium theory” as an alternative. To fully express the theory, Franklin coined new but now familiar terms: “positive” and “negative” as well as “plus” and “minus.”  As Shachtman explained, these “pairs” described “not two kinds of electricity, but two phases of a single fluid.”  

As a result of the much later discovery of electrons, positively and negatively charged electrons would substitute for Franklin’s “single fluid” with “electric spark” as the means to restore “equilibrium.” 
Franklin’s theory was correct.

In arriving at the single fluid theory over a period of several years, Franklin enjoyed the support of many collaborators and correspondents. In pursuit of a common goal, these individuals provided forthright communications and shared valuable insights to refine Franklin’s experiments. The efforts of this “ad hoc” group led to his success in ultimately identifying how electricity worked.

The single fluid theory of electricity had practical and immediate benefits. Franklin’s invention of the “lightning rod” to prevent fires in homes, building, and churches was one of these. Franklin did not patent the invention. As he had done before with the “Franklin stove,” he sought no profit from these inventions believing they were for “the benefit of mankind.”

In addition to deserved celebrity for placing American science on the world stage, Franklin learned lessons that would also serve him in his future role as a Founding Father.  

Franklin learned that perfecting experiments to final fruition required time and perseverance in the face of short-term setbacks.  He learned that revealing intermediate steps and results to a community of like-minded collaborators fostered creative synergy.  

He learned honest shared insights in a community dedicated to serving the greater good need not be motivated by individual profit to achieve success.

The next commentary will focus on the scientific thinking of other Founding Fathers as a prelude to turning attention to present-day government actions and attitudes directed at the scientific community.

I DON’T WANT TO FILE CHAPTER 13!
That’s what most of my consumer bankruptcy clients say. They want to file Chapter 7, which they see as easy, inexpensive, and quick.

I DON’T WANT TO FILE CHAPTER 13!

That’s what most of my consumer bankruptcy clients say. They want to file Chapter 7, which they see as easy, inexpensive, and quick. They hate the idea of filing Chapter 13. But when they fully understand Chapter 13, they come to like it. They don’t want anyone throwing them out of their Chapter 13 Plan. People who are in Chapter 13 are forcing their creditors to accept a payment plan that the consumer proposes, and the Court approves. And they don’t lose any property.

Why would a person be forced into Chapter 13 instead of Chapter 7? Two big reasons: (1) They have a house that has too much equity to keep; and/or (2) the household income is too high. These days, with home values being high, more people have large amounts of equity in their homes and they can’t file Chapter 7 without losing their house.

Chapter 13: In Chapter 13 bankruptcy, payments are made on a portion of the debt, and the rest of the debt is wiped out. The payments are usually based on subtracting the client’s monthly expenses from their monthly income, and the leftover amount is sent to the trustee every paycheck for the length of the Plan. The Plan will run for either three years (36 months) or five years (60 months). Working out the client’s budget is the hard part. Most people whom I see are not wasting money, so there is not much cutting to do.

The first reason people have to file Chapter 13 over Chapter 7: How much equity is in the house? Many people have no idea how to figure out their equity. The quick way is to double the SEV (State Equalized Value, as shown on the twice-yearly tax bill) to get the value of the house according to the City or Township, and then subtract what is owed on the mortgage. But this method assumes the SEV is accurate. Many Chapter 7 Trustees will want to get their own estimate of the house value.

Looking online at Trulia or Zillow is another way, but these sites are often not trusted either. The most accurate way to get the house value is to list it for sale and see what offers come in.

And that is what the Chapter 7 Trustee will do to see what offers the house will bring. This prospect often scares the consumer debtor, and they will not want to file bankruptcy at all.

But the solution is to file Chapter 13, where the debtor cannot lose any property.

Paying for your property in a Chapter 13. The problem is, in a Chapter 13 your non-exempt property must be paid for. Every Chapter 13 has a Chapter 7 case within it. The attorney must calculate what property the client would lose in a Chapter 7, and that non-exempt property must be paid for. The law’s assumption is that the client doesn’t have to file Chapter 7, they could liquidate their property and pay their debts that way. But by filing bankruptcy, the client gets to keep a certain amount of property (the exemptions), whereas if they did not file bankruptcy, they would be selling off all their property to pay their debts. So the benefit of filing Chapter 13 is that you don’t have to sell any property, but you have to pay for the non-exempt portion of what you are keeping. This often makes a Chapter 13 payment unaffordable. In that situation, the attorney will have to counsel the client to consider selling the property and paying the creditors with the net profits.

The second reason people have to file Chapter 13 over 7: How much income is too much? Generally, a single person earning up to about $50,000 annually will pass the means testing and be able to file Chapter 7. But above that income, they may not qualify and they will be forced to file Chapter 13. Here is a calculator that you can use to enter a potential filer’s household income and see if the person qualifies: https://www.bestcase.com/quick-median-income-test/

A big benefit in Chapter 13: Some debts (like student loans and taxes) are not wiped out in either Chapter 7 or Chapter 13. But they have to be listed, and they get priority. So if the student loans and taxes have to be paid anyway, that often means that the credit cards and other unsecured debts will get less. In a Chapter 13, the unsecured creditors will end up with only a small percentage of their debts paid and the rest is wiped out.

The Chapter 13 payment is effectively the client’s student loan and tax payment, which would have to be paid anyway - it just goes through the Trustee. And the student loan and tax authorities are forced to accept the Chapter 13 Plan.

A big benefit in Chapter 13: Attorney fees. When clients wince at the thought of having to file Chapter 13, part of the problem is the attorney fees, which will be much greater than for a Chapter 7. What they don’t understand is that in Chapter 13, the attorney fees are usually paid through their plan payment, and the client pays the attorney nothing directly. The usual attorney fee (which is set by the Court) for a Chapter 13 is $3,500. But the client doesn’t have to pay that up front – the client makes their regular payment to the Chapter 13 Trustee, and the Trustee and the attorney get paid out of that. Unfortunately for the creditors, that sometimes lowers the amount that the creditors will get. So the net effect is that the creditors are paying the client’s attorney fees. I call it justice.

  _____________________

Gregory L. Dodd, a past Co-Chair of the WCBA Bankruptcy Law Section, has been filing bankruptcy cases (Chapters 7 and 13) since 1995. He currently handles only bankruptcy, probate and divorce matters. Mr. Dodd is a former WCBA president. He can be reached at greggdodd2000@gmail.com.
Reprinted with permission from the Washtenaw County Bar Association newsletter Res Ipsa Loquitur.