When you file for bankruptcy you are permitted to use Michigan state laws known as exemptions to protect your personal property. In a Chapter 7 bankruptcy the trustee may sell your property if it is worth more than what the exemption amount is. In a Chapter 13 bankruptcy you are permitted to keep your personal property if it is worth more than the exemption amount but you will have to pay back your creditors the portion that is not exempt.
Read on to learn what property is exempt in Michigan.
What Are Bankruptcy Exemptions?
Bankruptcy exemptions determine what type of property you can keep when filing for bankruptcy. Every state has its own bankruptcy exemption laws that specify the types and amounts of property that you can keep. Items like your house, car, and household goods are generally protected and can’t be sold in order to pay off your debts. If an item is not protected or is worth more than what the state exemption will allow you may be forced to sell the item to pay off your debts.
In a Chapter 13 bankruptcy you are permitted to keep property that is worth more than what the state exemptions allow provided that you pay back your creditors the portion that is not exempt.
Choosing Between State and Federal Exemptions
Not only does every state have its own bankruptcy exemption laws, there are federal exemption laws as well. Michigan residents are permitted to use either state or federal exemptions.
Important note: In 2011 the Sixth Circuit Bankruptcy Appellate Panel found that Michigan’s bankruptcy-only exemptions (these are exemptions that apply only in bankruptcy, and not to other situations where a creditor is trying to collect a debt) were unconstitutional. Luckily, in August of 2012, the Sixth Circuit Court of Appeal reversed that decision, holding that Michigan’s bankruptcy-only exemptions are constitutional. As of now, Michigan bankruptcy filers can choose to use the bankruptcy-only exemptions.
(To learn more, see the blog post titled 6th Circuit Says Michigan Filers Can Use Bankruptcy-Only Exemptions.)
Michigan Exemptions and Married Debtors
Married debtors filing jointly are permitted to double the listed exemptions amounts. The exception to the rule is the homestead exemption. Only one debtor may exempt the equity in a home, not both.
Common Michigan Exemptions
Some of the more commonly used Michigan exemptions are listed below. All law references are to the Michigan Compiled Laws unless otherwise indicated.
Note: The dollar amounts for many of the below exemptions will change on April 1, 2014. It may take several days to update this article. To get up-to-date dollar figures that will apply if you file your bankruptcy case on or after April 1, 2014, see Michigan Bankruptcy Exemption Amounts to Increase on April 1, 2014.)
The homestead exemption protects the equity that you have in your residence up to $37,775 (if you are over 65 or disabled the limit is $56,650). 600.5451(1)(n). For more information see the Michigan Homestead Exemption in Bankruptcy.
Motor Vehicle Exemption
The motor vehicle exemption protects equity that you have in your vehicle up to $3,475. This exemption can only be applied to one vehicle. 600.5451(1)(g). For more information, see the Michigan Motor Vehicle Exemption in Bankruptcy.
Household Goods and Personal Property
This exemption protects your household goods such as furniture, utensils, books, appliances, and jewelry valued up to $600 per item and $3,775 total. 600.5451(1)(c). In addition:
- There is no limit as to the amount of clothing that you can keep. 600.5451(1)(a)(iii).
- Computer accessories are protected up to $650. 600.5451(1)(n).
- There is no limit to the amount of family pictures that you can keep. 600.5451(1)(a)(i).
Pension and Retirement Accounts
Most pension and retirement accounts are completely protected with a few exceptions.
- Individual Retirement Accounts and Annuities are fully protected with the exception of amounts that are contributed within the 120 days prior to filing for bankruptcy. 600.5451(1)(l).
- Traditional, Simple, or Roth IRA’s are protected up to $1,245,475. (This amount is adjusted every three years. For the most recent figure, see Your Retirement Account in Bankruptcy.) 11 U.S.C. § 522(b)(3)(C)(n).
- Education IRA’s are protected up to $6,225. 11 U.S.C. §541(b)(5)(c).
- A pension, profit sharing, stock bonus, or other qualified plan is fully protected with the exception of amounts contributed in the 120 days prior to filing. 600.5451(1)(l).
You can protect up to 60% of earned but unpaid wages for head of household and up to 40% for others. The head of household can keep at least $15 per week plus $2 per week for each dependent other than the spouse and $10 per week for others. 600.531.
Insurance benefits are fully protected regardless of the amount. 500.2207. Benefits paid on behalf of an employer are fully protected. 500.2210. Benefits paid by any stock, mutual life, health, or casualty insurance are also fully protected. 600.5451(1)(i).
The public benefits listed below are fully protected regardless of the amount received.
- Crime victims’ compensation (18.362)
- Unemployment compensation (421.30)
- Korean War veterans’ benefits (35.977)
- Vietnam War veterans’ benefits (35.1027)
- Welfare benefits (400.63)
- Worker’s compensation benefits (418.821)
Tools of Trade
Your interest in the tools, implements, materials, stock, and other items necessary to carry on your profession, trade, occupation, or business is protected up to $2,525. 600.5451(1)(i).
Researching Exemption Statutes
This article only mentions the most commonly used Michigan exemptions. It does not mention all exemptions that are available to you. Keep in mind that state exemptions change periodically so you should always check the exemption statutes themselves before filing for bankruptcy.