Real estate prices are changing rapidly in the current marketplace. Values continue to rise which is great for homeowners looking to sell and townships looking at increasing property taxes. Real estate prices can create some challenges when an individual is considering filing for bankruptcy protection to eliminate/reduce other outstanding debts.
Potential bankruptcy filers (often referred to as debtors) are allowed to protect certain values of assets (called exemptions) through a bankruptcy. In the state of Michigan, debtors can either select Federal exemptions or Michigan exemptions. Unfortunately, the exemptions cannot be cherry picked and you must either elect one or the other. Oftentimes, real estate equity is the deciding factor on what to utilize.
The Federal exemptions allow you to exempt $25,150.00* of equity in real estate. In the event your spouse and you are both filing, that amount can be doubled. If you don’t use all of that exemption on your home (up to half of this amount – if not used – can be used for your wildcard exemption which allows you to protect assets that don’t fit into other categories).
The Michigan exemptions allow you to protect $40,475.00* of equity in real estate and you aren’t allowed to double this amount if you file with your spouse. That amount is increased to $60,725.00* if you are disabled or over 65 years old. The Michigan exemptions also allow you to protect equity in full “held jointly by a husband and wife as a tenancy by the entirety” except the exemption doesn’t apply to any joint creditors of husband and wife.
Current real estate market conditions can make it challenging to determine what equity a homeowner may have because most of us aren’t realtors or appraisers. The potential bankruptcy-filer has to gauge the equity position they have in their house and contemplate market changes that may occur after filing their case. Appreciation in real estate after filing the case can be detrimental in a Chapter 7 case because your equity position could grow. Appreciation in a Chapter 13 bankruptcy may be less of a concern (unless you plan to sell) but a Chapter 13 bankruptcy may not be feasible for some people contemplating bankruptcy.
An experienced bankruptcy attorney can help steer you through your options in protecting your home in a bankruptcy. While a bankruptcy attorney may not be able to value your Grand Rapids property, they can provide you options so you can make an informed decision on how to tackle your debts and protect the place you call home. Please reach out for a free bankruptcy consultation if you are experiencing crippling debt and have questions.
*Homestead bankruptcy exemptions are inflation-adjusted. These numbers may or may not be accurate depending on when you read this blog.