What can I keep in my Michigan Bankruptcy Case: Protecting Assets with Exemptions
Bankruptcy can be a daunting prospect for individuals facing overwhelming debt. However, for many, it offers a pathway to financial stability and a fresh start. One of the critical elements of bankruptcy is understanding exemptions – provisions that allow debtors to safeguard certain assets from creditors’ claims. While some states, such as Michigan, offer their own set of exemptions, individuals also have the option to choose federal bankruptcy exemptions in Michigan. Understanding these provisions is essential for those considering bankruptcy.
What are Bankruptcy Exemptions?
Bankruptcy exemptions are provisions in state and federal law that allow individuals filing for bankruptcy to shield specific types and amounts of property from being liquidated by the Bankruptcy Trustee to pay off creditors. These exemptions vary from state to state, and debtors must choose between state and federal exemptions, depending on which offers better protection for their assets.
Federal Bankruptcy Exemptions:
Federal bankruptcy law provides exemptions for various categories of property, including:
- Homestead Exemption:
- Under Federal law, debtors can exempt up to $27,900 in equity in their primary residence. This exemption applies to both real property, such as a house or condominium, and mobile homes. For married couples filing jointly, each spouse can claim a separate homestead exemption, effectively doubling the protection. 11 USC § 522(d)(1)
- Personal Property Exemptions:
- Motor Vehicles: Debtors can exempt up to $4,450 in equity in one motor vehicle. 11 USC § 522(d)(2)
- Household Goods and Furnishings: Debtors can protect up to $14,875 in value for household goods, furnishings, appliances, clothing, and other personal property. There is an item cap of $700. 11 USC § 522(d)(3)
- Jewelry: Jewelry, including wedding and engagement rings, is exempt up to $1,875 in value. 11 USC § 522(d)(4)
- Health Aids: Certain health aids, such as wheelchairs and prosthetic devices, are fully exempt from the bankruptcy estate. 11 USC § 522(d)(9)
- Tools of the Trade:
- Tools, books, and implements used in a debtor’s trade or profession are exempt up to $2,800 in total value. 11 USC § 522(d)(6)
- Retirement Accounts:
- Most tax-exempt retirement accounts, including 401(k)s, IRAs, and pension plans, are fully exempt from the bankruptcy estate. This exemption allows debtors to retain their retirement savings for future financial security. 11 USC § 522(d)(12)
- Public Benefits:
- Various public benefits, such as Social Security, unemployment compensation, veterans’ benefits, and public assistance, are exempt from creditors’ claims. These benefits provide essential support for debtors during financial hardship. 11 USC § 522(d)(10)
- Wildcard Exemption:
- The federal bankruptcy code includes a wildcard exemption that can be used to protect any property not covered by specific exemptions. Debtors can exempt up to $1,475 in any property, plus an additional $13,950 in unused homestead exemption. 11 USC § 522(d)(5)
You can review all the Federal Exemptions here: https://www.law.cornell.edu/uscode/text/11/522.
Federal bankruptcy exemptions are automatically adjusted for inflation every three years on April 1. The next adjustment will take place on April 1, 2025.
Michigan Bankruptcy Exemptions:
Michigan bankruptcy law provides exemptions for various categories of property, including:
- Homestead Exemption
- Under Michigan law, individuals filing for bankruptcy can exempt up to $46,125 in equity in their primary residence (or if over 65 years old and/or disabled up to $69,200). This exemption allows homeowners to retain their homes up to the specified equity limit, provided they continue to make mortgage payments. Unfortunately, these amounts cannot be doubled for spouses filing in a jointly administered case. MCL 600.5451(1)(m).
- Tenancy by the entirety protects all house equity but does not protect against joint debt of married couples. MCL 600.5451(1)(n)
- Personal Property Exemptions
- Motor Vehicles: Debtors can exempt up to $4,250 in equity in one motor vehicle. MCL 600.5451(1)(g)
- Household Goods and Furnishings: Debtors can exempt household goods, furnishings, appliances, and other personal property up to a value of $4,625. MCL 600.5451(1)(c). Wearing apparel (MCL 600.5451(1)(a)(iii)
- Jewelry: Included with household goods, up to a value of $4,625. MCL 600.5451(1)(c)
- Tools of the Trade
- For individuals whose livelihood depends on tools and equipment, Michigan bankruptcy law offers exemptions to protect these essential assets. Debtors can exempt up to $3,075 in tools, implements, materials, books, and instruments of their trade, profession, or business. MCL 600.5451(1)(i).
- Retirement Accounts
- Retirement savings are often considered sacrosanct in bankruptcy proceedings. In Michigan, most tax-exempt retirement accounts, including 401(k)s, IRAs, and pension plans, are fully exempt from the bankruptcy estate. This means that debtors can typically retain their retirement savings without fear of losing them to creditors. MCL 600.5451(1)(k) [this does not include contributions within 120 days but under 11 USC 522(b)(3)(C) the bankruptcy provides protections equal to the Federal exemptions.]
- Public Benefits
- Public Assistance. MCL 400.63, Unemployment compensation. MCL 421.30
- Wildcard Exemption
- Michigan bankruptcy law does not include a wildcard exemption that can be used to protect any property not covered by specific exemptions. This often results in some assets that cannot be protected through the bankruptcy case.
Michigan offers a unique set of bankruptcy exemptions tailored to the needs of its residents. In most situations, the Federal exemptions offer superior protection of assets through a bankruptcy with the exception being individuals with considerable equity in their homes.
You can review all the Michigan Exemptions here: https://www.legislature.mi.gov/Laws/MCL?objectName=MCL-600-5451.
Michigan bankruptcy exemptions are automatically adjusted for inflation every three years on April 1. The next adjustment will take place on April 1, 2026.
Consulting a Bankruptcy Attorney:
Navigating bankruptcy law and exemptions can be complex, and the stakes are high. Consulting with a knowledgeable bankruptcy attorney is essential for individuals considering bankruptcy in Michigan. An attorney can assess your financial situation, help you understand your rights and options, and guide you through the bankruptcy process, ensuring that you take full advantage of available exemptions to protect your assets.
Conclusion:
Bankruptcy can offer much-needed relief for individuals drowning in debt, but it’s essential to understand the laws and protections available in your state. By understanding and leveraging these exemptions effectively, debtors can safeguard essential assets such as homes, vehicles, personal property, and retirement savings while pursuing a fresh financial start. Consulting with a qualified bankruptcy attorney can provide invaluable guidance and support throughout the bankruptcy process, helping individuals navigate the complexities of the law and emerge with greater financial stability.