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Bankruptcy: Michigan

Filing bankruptcy in Michigan aims to achieve two goals:  First, to give honest debtors an opportunity to recover from debt, and second, to repay creditors to the extent that a debtor’s property value or earnings permit. 66,718 bankruptcies were filed in Michigan in 2010, ranking Michigan 7th in the country for the number of bankruptcy filings per capita. 84% of Michigan’s bankruptcy petitions in 2010 sought protection under Chapter 7 bankruptcy.

Filing Bankruptcy in Michigan

Federal law governs bankruptcy proceedings in Michigan, and as such all bankruptcy cases are filed in the US Bankruptcy Courts located in:

  • Michigan Eastern District Court: Bay City, Detroit and Flint
  • Michigan Western District Court: Grand Rapids, Kalamazoo, Lansing, Marquette and Traverse City

Although federal courts have exclusive jurisdiction over bankruptcy proceedings, Michigan law permits petitioners to use the exemptions found in the U.S. bankruptcy code or the exemptions provided under Michigan law. The exemption systems are not interchangeable. With the guidance of a bankruptcy attorney Michigan petitioners can gain a full understanding of what personal property the systems permit the petitioner to keep in bankruptcy, and what must be sold.

Chapter 7 Bankruptcy, Michigan

Chapter 7 bankruptcies in Michigan are the most common bankruptcy filing.  Chapter 7 is suitable for petitioners who do not have significant assets such as substantial equity in a home or financial investments, for the reason that a Bankruptcy Trustee may liquidate personal property that isn’t protected by Michigan’s bankruptcy exemptions. Liquidation happens when a court-appointed Trustee converts personal assets to cash for distribution to creditors. Michigan’s Chapter 7 bankruptcy law allows petitioners to retain some essential property and these exempt assets are off-limits to creditors seeking repayment.

The vast majority of Chapter 7 cases are “no-asset” cases where no property is taken.

Michigan Bankruptcy Exemptions

Michigan bankruptcy law assigns precise property exemptions allowing debtors to keep certain personal property and assets so bankruptcy proceedings do not leave them in a helpless situation.  In real terms, this means creditors cannot force debtors to sell the shirt off their back to repay debts owed.  Bankruptcy in Michigan permits petitioners to choose exemptions from either the federal or state lists.

Property exemption amounts are subject to change; individuals and couples thinking about filing bankruptcy should sit down with a Michigan bankruptcy attorney to discuss the exemptions applicable to their situation.  Michigan bankruptcy exemptions include:

Michigan Homestead Exemption

  • $35,300 total: Real property including condo, $52,925 if elderly or disabled; property cannot exceed 1 lot in town, village, city or 40 acres elsewhere; spouse or children of deceased owner may claim homestead exemption. Spouses or unmarried co-owners may not double.

Michigan Tenancy by Entirety Exemption

  • Property held as tenancy by the entirety may be exempt against debts owed by only one spouse.
  • Bonds, certificates of stock, mortgages, promissory notes, debentures, or other evidences of indebtedness hereafter made payable to persons who are husband and wife held as tenancy by the entirety may be exempt against debts owed by only one spouse.

Michigan Personal Property Exemption

  • $3,525 total: Appliances, utensils, books, furniture and household goods to $550 each
  • $3,250 total: 1 Motor Vehicle
  • $600 total: 1 Computer and accessories
  • $600 total: Household pets
  • Clothing; family pictures
  • Food & fuel to last family for 6 months
  • Prescribed health aids
  • $2,350 total: Crops, farm animals, and feed for the farm animals
  • $1,175 par value: Building and loan association shares, in lieu of homestead
  • $600 total: Church pew, slip, seat for entire family
  • Burial plots, cemeteries

Michigan Tools of the Trade Exemption

  • Arms & accoutrements required
  • $2,350 total: Tools, implements, materials, stock, apparatus, or other items needed to carry on occupation

Michigan Wage Garnishment Exemption

  • Head of household may keep 60% of earned but unpaid wages, no less than $15 per week;  plus $2 per week per non-spouse dependent;
  • Non-head of household may keep 40% of earned but unpaid wages, no less than $10 per week

Michigan Public Benefits Exemption

  • Social welfare benefits
  • Workers’ and Unemployment compensation
  • Veterans’ benefits for Korean War veterans
  • Veterans’ benefits for Vietnam veterans
  • Veterans’ benefits for WWII veterans
  • Crime victims’ compensation

Michigan Insurance Exemption

  • Disability, mutual life, or health benefits
  • Fraternal benefit society benefits
  • Employer-sponsored life insurance policy or trust fund
  • Life insurance
  • Life, endowment or annuity proceeds if clause prohibits proceeds from being used to pay beneficiary’s creditors

Michigan Pensions and Retirement Savings Exemption

  • Judges, Probate judges and Legislators
  • Public school employees
  • State employees
  • Firefighters, police officers
  • ERISA-qualified benefits, except contributions within last 120 days
  • IRAs, Roth, Roth IRAs, except contributions within last 120 days; limited to tax-deductible contributions for non-Roth IRAs

Michigan Miscellaneous Exemption

  • Property of business partnership

Chapter 13 Bankruptcy, Michigan

In 2010, 16% of petitioners filed for protection under Chapter 13 bankruptcy in Michigan.  Filing Chapter 13 bankruptcy in Michigan results in a court-appointed Trustee working on the petitioner’s behalf to reorganize finances, develop and implement a 3-5 year repayment plan, using the debtor’s future earnings to pay back creditors.  Chapter 13 petitioners in Michigan keep most – or all – of their property.

How to File Bankruptcy in Michigan

Eligibility for property exemptions should be a key consideration for anyone considering bankruptcy protection as a means to cope with financial problems. The end goal should be to protect major assets and discharge debts. Bankruptcy cases are unique and challenging, and as such, a Michigan bankruptcy attorney is a tremendous resource to debtor’s in need of educated advice concerning financial options and Chapter 7 or Chapter 13 bankruptcies.

Bankruptcy Attorney: Michigan

A bankruptcy petitioner has an obligation to know their rights and responsibilities as a debtor. Petitioners facing the complex and stressful task of filing personal bankruptcy will benefit from meeting with a Michigan bankruptcy attorney, who can clarify federal bankruptcy laws and state exemptions and advise what options are appropriate given one’s individual circumstances.