Federal & Michigan Bankruptcy Exemption Rules

When you are facing Chapter 7 bankruptcy in Michigan, you will want to understand both the federal exemption rules and the specific exemption rules in Michigan. While the federal rules apply all over the United States, every state has their own separate set of rules. Below, we’ll explore the different rules you’ll have to know in Michigan and the federal Exemption rules as well.

What IS a Bankruptcy Exemption Rule?

Exemption, when it comes to Chapter 7 bankruptcy, refers to the specific assets that can not be seized in order to settle your debts. These assets can come in the form of material assets, such as houses, or certain monies. Exemptions exist to allow the debtor to still go forward with their daily life without having to lose everything.

How Do Bankruptcy Exemption Rules Apply?

When you file for bankruptcy in Michigan, you can choose which set of exemptions you want to use; either the federal list or the State of Michigan’s list. There are benefits and drawbacks to each, and every case is unique. You will want to consult your local bankruptcy attorney before you decide what is most advantageous for you.

So what are some of the differences in the rules, and how might choosing federal exemptions or state exemptions affect your bankruptcy?

Homestead Exemption in Michigan Bankruptcy Cases

Both Michigan and the federal list allow for what is known as a homestead exemption. This enables you to set aside a portion of the equity in your primary home. Remember that equity is not your loan, or the value of it. Rather, it is the difference between what your home is worth, and how much you owe on it.

The homestead exemption in Michigan is currently much more generous than the federal exemption, which is not the case in every state. Michigan allows for more than $35,000 of your home equity to be set aside, while the federal rules only allow for $25,000. If you are over 65, or disabled, you might be eligible to exempt even more.

Vehicle & Personal Goods Exemptions in Michigan Bankruptcy Cases

Both the federal exemption rules and Michigan’s exemption rules allow for a vehicle exemption. The federal rules allow for a few hundred dollars more, which can have a huge impact, as most debtors want to retain their cars. Vehicles are often the primary mode of transportation to a job, and this is especially true in Michigan.

Both sets of rules also allow a number of personal goods to be set aside, as well as items used to earn a living. These can include utensils, décor, furniture, appliances, and books. The federal rules on this matter are nearly triple Michigan’s $3,500 limit.

Wage Exemption

Yes, even your paycheck is considered fair game when it comes to settling your debts. Under federal rules, all of your paycheck could be included in certain calculations. In Michigan, you are allowed to exempt a portion of your wages for daily living. This amount could be 40-60% of your wages, depending on whether or not you are responsible for the household.

Wildcard Exemption

One of the other major categories you’ll want to understand is the wildcard exemption. This is an exemption that can be used to protect something that would normally not be exempt. Some of these items might include a classic car you have restored, a comic book collection, or other such items.

Something you may not know, however, is the wildcard exemption can be used to increase exemption amounts on other assets as well. You could use it to exempt more of your home equity, your vehicle, or even your personal goods exemption.

Michigan does not allow for a wildcard exemption, but the federal rules do. The amount is not much; in many cases just over $1,000. It can be combined with any unused homestead exemption, however.

Should I Take The Michigan Exemptions or the Federal Exemptions?

There is no right or wrong answer to this question. The majority of the rules are similar, with some key differences. However, every case is going to be different. What works for you may not be best for your co-worker or cousin. In short, the best advice is to listen to your local bankruptcy attorney and accept their recommendations.

The Mitten Law Firm has helped hundreds of clients navigate Chapter 7 bankruptcy in Michigan. Contact us today for a confidential and free consultation.