A Brief Guide to Michigan Bankruptcy Exemptions

When you file for bankruptcy, you typically must give up certain types of property and assets in order to pay off your debts. Bankruptcy exemption laws allow you to keep certain types of property depending on your state of residence. In Michigan you are allowed to choose either state or federal exemptions.

You are generally allowed to keep items like your house, car, and household goods. In certain situations, you may be forced to sell property that isn’t included in the exemption laws or property that exceeds the exemption amount. Bankruptcy exemption rules also vary depending on the “chapter” of bankruptcy you file. The most common types of bankruptcy are Chapters 7 and 13, and the laws are distinguished as follows:

Chapter 7 bankruptcy: if your property’s value exceeds the exemption amount, the trustee may sell your property.

Chapter 13 bankruptcy: you may keep personal property in excess of the exemption amount, but you will have to pay your creditors back to make up for the portion that is not exempt.

Michigan laws place an exemption limit on any equity you have in your property. To calculate equity, you subtract the difference between the property’s value and the amount you owe on that same property. If you are married and filing jointly with your spouse, you are entitled to double the exemption amounts—except in the case of the homestead exemption. Only one of you may exempt the equity in your home.

What are some of the most common bankruptcy exemptions in Michigan?

Homestead Exemption: Equity in your home is protected in amounts up to $37,775, or $56,650 if you are over 65 or have a disability.

Motor Vehicle Exemption: Applicable to only one vehicle, this exemption protects equity up to $3,475.

Household Goods and Personal Property: You are protected for up to $3,775 worth of household goods like furniture, jewelry, utensils, appliances, and books valued up to $600 per item. You can keep an unlimited amount of clothing and family pictures.

Pension and Retirement Accounts: These are usually protected in their entirety, with a few exceptions.

Wages: The “head of household” can keep up to 60% of earned but unpaid wages, and others can keep up to 40%.

Insurance Benefits: Any amount of insurance benefits are fully protected, whether they are paid on behalf of an employer or paid by stock, mutual life, health, or casualty insurance.

Public Benefits: Many public benefits are exempt, regardless of the amount, including unemployment compensation, Korean War or Vietnam War veterans’ benefits, welfare, and more.

Tools of Trade: You may need certain tools, materials, and so on to work in your profession, trade, occupation, or business. Your interest in these tools is exempted up to $2,525.

If you wish to keep property that is not exempt, you can usually pay the trustee to match the value of your nonexempt property. You may want to research further if you have questions about exemptions for less common types of property or assets. The amounts and types of exemptions can also change from time to time, so make sure you are up-to-date before filing for bankruptcy.

If you’re not sure whether you qualify for a particular bankruptcy exemption, you should discuss your options with an experienced bankruptcy attorney. Feel free to call MaxwellDunn to get accurate and updated information about bankruptcy exemptions. Our dedicated attorneys can help you file for bankruptcy, choose the right chapter, and plan ahead so you can feel confident about the future.