If you file for a “debt liquidation” bankruptcy under Chapter 7 of the United States Bankruptcy Code, the Trustee has an economic incentive in selling assets for the benefit of creditors. But the Trustee cannot just take what they want. In the vast majority of cases, you can keep all of your property in a bankruptcy. There are exemptions, or protections, that you can place on your property so that the Trustee cannot touch them and you can keep them.
Even if you file for a “debt repayment” bankruptcy under Chapter 13, the exemptions still play a significant role in what percentage of the debt you have to repay to your creditors. There are various types of exemptions you can use for different kinds of property. Part 1 and 2 of this series focused exclusively on the details of the Federal exemptions. The emphasis of Part 3 is on the difference between the Federal exemptions and the Michigan exemptions, as well as some of the more common Michigan exemptions.
If you have lived in the State of Michigan for at least the last two years prior to filing for bankruptcy, you can use the Federal exemptions or the Michigan exemptions. You cannot use a Federal exemption for one asset and a Michigan exemption for another asset. You must elect to use either all Federal exemptions or all Michigan exemptions to protect your property. There are some “Federal Non-Bankruptcy Exemptions” you can use if you elect to use the Michigan exemptions, but they are beyond the scope of this article.
The Federal exemptions are less generous in terms of the amount of equity in your residence, but more generous in terms of other things such as money in bank accounts, cash on hand, income tax refunds you are owed, etc. The Michigan exemptions are the opposite: they are more generous in terms of the amount of equity in your residence, but offer no protection for certain items such as cash on hand, money in bank accounts, or income tax refunds you are owed. There are certain items that are protected whether you use the Federal exemptions or the Michigan exemptions, such as money in retirement instruments like a 401(k), pension, or IRA, for example.
There is a “Homestead” exemption you can use to protect the equity in your home. The maximum amount of the “Homestead” exemption is $38,225 if you are under the age of 65, and $57,350 if you are 65 or older. Unlike the Federal exemption for the equity in your residence, a married couple filing jointly cannot each use the “Homestead” exemption. The amounts listed above are the maximum whether you file alone or jointly with your spouse. You can protect up to $3,825 worth of your household goods using the “Household Goods” exemption. You can protect the value of your automobile. Subtract the amount you owe on the vehicle from its present market value. What you have left is the value you must protect in bankruptcy. If this number is $3,525 or less, the Michigan “Motor Vehicle” exemption protects your automobile.
The above information is a general overview and is not intended to be used as legal advice. The analysis of whether to use the Federal exemptions or the Michigan exemptions in your case is highly dependent on the value of your assets. If you are considering filing for bankruptcy, the best thing to do is call our office at 248-557-3645 and schedule a free consultation so you can receive advice which is tailored to your specific circumstances.
By: Michael Benkstein, Esq.
Managing Attorney, Bankruptcy Department
The Law Offices of Joumana Kayrouz, PLLC