Question: Is the Michaels convention only used in the overcall position or can I use it in the fourth seat, e.g. 1♣ P 1♥? Can I now bid 2♥ showing five spades and 5 diamonds? I only had 7 points.
There is no Michaels when opponents have bid 2 suits. You can just double for the other two suits. If you only have 7 HCP and have not yet passed, you cannot take any action. Back into the auction later if appropriate.
There is a bid called “Sandwich No Trump” which can be used in these situations. A Sandwich No Trump bid promises 5-5 OR LONGER in the two unbid suits. It also shows a hand TOO WEAK to make a take-out double. So, if you were playing a Sandwich NT, that is the call you can make with the hand you had.
The rationale is that it is very dangerous to bid a “real” no trump between two bidding opponents. Most of the time, you'll just get in trouble. So the NT bid is used to show a weak hand with the other two suits. Sandwich NT bids must be alerted.