Bankruptcy & Exemptions in Michigan

By Tom Streissguth

You can relieve a dire financial situation by filing for bankruptcy protection from creditors. The law allows you to petition in a federal court, which will issue an automatic stay barring any further collection action and halting all lawsuits against you. In Chapter 7, a court-appointed trustee seizes non-exempt assets and sells them to repay your creditors. Federal law allows you to exempt (protect) some of your assets, and Michigan has its own schedule of exemptions, as well.

You can relieve a dire financial situation by filing for bankruptcy protection from creditors. The law allows you to petition in a federal court, which will issue an automatic stay barring any further collection action and halting all lawsuits against you. In Chapter 7, a court-appointed trustee seizes non-exempt assets and sells them to repay your creditors. Federal law allows you to exempt (protect) some of your assets, and Michigan has its own schedule of exemptions, as well.

Exemptions

Exempt property is property that you may protect from seizure in a Chapter 7 bankruptcy. Filing under Chapter 13 bankruptcy protection, you set up a repayment schedule for unsecured debts, and a court-appointed trustee can only consider non-exempt assets when drawing up the plan. The law allows exemptions in order to provide you with a minimum of assets and property, to will allow you a fresh financial start, and provide a minimum standard of living for you and your family while you are going through the bankruptcy process.

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Homestead Exemption

The state and federal exemptions apply to Chapter 7 or Chapter 13 -- there is no difference between the two bankruptcy types on which property you may protect. According to Michigan law, you can protect up to $35,300 of equity in your principal residence. This amount rises to $52,925 if you are 65 or older, or if you are disabled. Michigan also exempts 100 percent of your IRA or other retirement plan, as well as your life insurance cash value.

Personal Property

Michigan also exempts up to $3,525 in aggregate value in personal goods, including furniture, clothing, appliances and books, and up to $550 for any one item. You may protect up to $3,250 of equity in a car, and up to $600 in a computer system and accessories. Up to 60 percent of wages are exempt, if you are a head of household; that amount falls to 40 percent for all other members in a household. Michigan also exempts disability, workers' compensation, unemployment and veterans benefits.

Federal Exemptions

The federal exemption schedule varies from the exemptions set out by Michigan law. According to federal law, you may exempt $21,625 of equity in your home, no matter your age. The federal vehicle exemption is $3,450; household goods are exempt up to $11,525, and jewelry up to $1,450. There is no exemption for wages. By the wildcard exemption, you may protect any asset up to $1,150 in value, including personal property, real estate or cash. Similar to the Michigan law, disability and other non-wage benefits are fully exempt.

Choice of Schedules

Debtors filing for bankruptcy should review both the Michigan and federal exemption schedules carefully before filing a bankruptcy petition. In Michigan, you are allowed to choose either schedule, but you may not mix exemptions from both. Which schedule is to your advantage depends on which assets you have. The federal schedule will benefit you, for example, if you have a lot of expensive personal belongings to protect; Michigan allows a higher homestead exemption, but offers no wildcard.

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Bankruptcy Exemption Requirements

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Bankruptcy & Homestead

A homestead exemption allows you to retain a certain amount of equity in your home -- and can prevent the sale of your home to repay debts in a bankruptcy. In a Chapter 7, the trustee can make you sell your home if the equity you have in it exceeds the homestead exemption. In a Chapter 13 bankruptcy, the homestead exemption plays a part, too, because if you can exempt all or most equity in your home, you will have to repay less to your creditors. Both federal and state laws provide homestead exemptions. Some states allow you to choose between federal and state exemptions, whereas other states require you to use the state exemption.

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