Chapter 7 Bankruptcy: Exempt and Non-Exempt Assets in Michigan

For many individuals experiencing financial hardship, bankruptcy is the best option to get back on the road to recovery. Many people consider bankruptcy a last resort and don't fully understand how bankruptcy can help their situation. Some may believe that bankruptcy allows you a completely fresh start; others may think that they will lose all of their assets if they file for bankruptcy. Neither in fact is true.

Bankruptcy is a way to help an individual get back on firm financial ground, and in most cases, they keep all of their property. Bankruptcy protects some individuals' property with laws known as exemptions. In Chapter 7 bankruptcy, any property that is not protected with these exemptions must be turned over to the trustee, so it can be liquidated and the proceeds dispersed to creditors. The remaining debts may be discharged.

In Michigan, an individual filing for Chapter 7 bankruptcy can elect to use either state or federal exemptions to protect their assets. Each system of exemptions lays out certain items that may be protected from liquidation in a Chapter 7 bankruptcy. The individual generally chooses either state or federal exemptions depending on which system will offer the best protection of assets.

Chapter 7 Exemptions

Most people filing for bankruptcy are concerned about keeping certain assets, like the family home or car. Under Chapter 7, these common types of assets may be exempt to a certain extent. Meaning, there is a financial cap on the amount a home or vehicle value that can be protected. The mortgages or loans attached to these types of properties are generally considered secured debt, because the property serves as security for the debt. If the debt is not paid, the property will be seized.

Individuals do not need to surrender their houses or vehicles in a bankruptcy. As long as they continue making payments on these debts, they can keep them. Often, individuals reaffirm these debts after their discharge to help rebuild their credit.

Other types of secured debt may include loans for major household appliances and boats. Secured debt is not a bad debt to have. It simply means that the debt is tied to something of value.

People using the Michigan system of exemptions can protect up to $30,000 of equity in their homes. People using the federal system of exemptions are entitled to $21,626 for individual filers and $43,250 for joint filers.

A motor vehicle is also protected. Michigan exemption provides protection for up to $2,775 in equity from a car. The federal exemptions protect up to $3,225 in equity.

Pensions and retirement plans are the most well protected assets. This is why it is important not to cash in your pension or retirement accounts to pay for debt.

Household goods, jewelry and miscellaneous personal possessions can also be protected. The best way to understand what can be protected is to speak with a bankruptcy attorney, who can help you review all of your assets.

What Should I Do If I Do Not Have Enough Exemption to Cover My Assets?

People often worry that they will not be able to file bankruptcy if they do not have enough exemptions available to protect their assets. This is where it is extremely helpful to have an Ann Arbor bankruptcy attorney to assist you.

There are many ways to deal with non-exempt assets, but there are a few things you should never do under any circumstances:

  • Do not give any property or other assets to anyone else, even if you think it has minimal value
  • Do not transfer title of an asset to anyone, including children
  • Do not place any money or other asset in anyone else's possession for safekeeping

Depending on the asset, your bankruptcy attorney can review your options with you.

The bankruptcy process and the different types of exemptions can be complex and confusing. For more information on Chapter 7 bankruptcy and what exemptions may apply to you, consult with a Michigan attorney knowledgeable in bankruptcy matters. An attorney can review your situation, help you determine which type of bankruptcy may be the best fit for you and which exemptions may apply based on state or federal law.