Michigan Bankruptcy Exemptions Help Consumers
Updated: 5 days ago
Individuals who are struggling with debts and considering filing for bankruptcy often look to bankruptcy to stop debt collector actions and eliminate debt. In bankruptcy, an additional concern must include knowing what property can be protected from the reach of a bankruptcy trustee and creditors. Property exemptions under Federal or state law protect certain types of debtor property and prevent the trustee from using exempt property to satisfy creditor claims.
At the time of filing a Chapter 7 or Chapter 13 bankruptcy, the property of the debtor becomes the property of the bankruptcy estate. For Chapter 7 cases, property may be used to satisfy a secured creditor, satisfy unsecured creditors or may be exempt property that the debtor may keep. Bankruptcy exemptions prevent a trustee from taking certain types of property or a certain amount of property of the bankruptcy estate. For a Chapter 13 case, bankruptcy exemptions claimed by the debtor may limit the amount the confirmed plan is required to pay unsecured creditors.
Debtors and their attorney should review the debtor's property carefully to maximize the benefit of exemptions. Many states, including Michigan, provide a state list of bankruptcy exemptions that may be more extensive than the federal bankruptcy exemptions. A debtor has a choice between either the federal or state bankruptcy exemptions, but cannot choice both. A debtor may not cherry-pick from both sets of exemptions.
These two sets of exemptions are discussed below. If debtors file a joint bankruptcy, the exemptions are doubled. The exemptions are also adjusted for inflation every three years.
Federal Bankruptcy Exemptions
In bankruptcy, if a debtor has the opportunity or is required to choose the federal bankruptcy exemptions, there are twelve property categories that are exempt under the Bankruptcy Code section 522. The federal bankruptcy rules also contain definitions that apply to the federal exemptions, but may not bCategories below have been broken out more by topic.
Real Property or Homestead - up to $25,150 of real property or personal property used by the debtor or a dependent. A debtor may also exempt up to $15,000 of a cooperative housing interest. Additionally, the value of a burial plot may be included in this value amount if necessary.
Vehicle - up to $4,000 of value in a motor vehicle. Importantly this exemption applies to one vehicle, not multiple vehicles.
Household furnishings - typical household goods, wearing apparel, appliances, books, animals, crops, or musical instruments, that are held primarily for the personal, family, or household use of the debtor or a dependent of the debtor. The value limit is $625 per item and $13,400 for the total value of all household goods. This category is not separately stated like the Michigan exemptions.
Jewelry - held primarily for the personal, family, or household use of the debtor or a dependent of the debtor for a total value of $1,700.
Wildcard - the aggregate interest in any property up to $1,325 plus $12,575 of any unused homestead exemption. The wildcard may be used on any property subject to the value limits.
Professional tools - in professional tools of the trade including, professional books or tools of the trade of the debtor or the trade of a dependent of the debtor. The total allowed value is $2,525.
Life insurance contract - owned by the debtor other than a credit life insurance contract.
Health aids or equipment - used to help the debtor or a dependent of the debtor. No value limitation is applied to health equipment.
Crime victim reparations in any amount payable to the debtor.
Wrongful death payment to the debtor if the debtor was a dependent of the decedent or the payment is necessary to support the debtor and any of the debtor's dependents.
Life insurance contract payment to the debtor on the life of the insured who was an individual of whom the debtor was a dependent on the date of such individual’s death, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor.
Personal injury payment, not to exceed $25,150, due to a personal bodily injury. This amount does not include amounts paid for pain and suffering or to compensate the debtor for actual financial loss.
Compensation of loss of future earnings of the debtor or an individual of whom the debtor is or was a dependent, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor.
Right to certain sources of future income of the debtor including a social security benefit, unemployment compensation, or a local public assistance benefit, a veterans’ benefit, a disability, illness, or unemployment benefit, alimony, support, or separate maintenance, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor, retirement plan payments including a payment under a stock bonus, pension, profitsharing, annuity, or similar plan or contract on account of illness, disability, death, age, or length of service, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor, unless the plan was established by an insider that who based the payments on age or length of service and the plan does not qualify under section 401(a), 403(a), 403(b), or 408 of the Internal Revenue Code of 1986.
Retirement funds - for qualified retirement funds that are exempt from taxation under section 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code of 1986. This category includes common 401(k) or 403(b) plans. IRAs are also protected.
Michigan Bankruptcy Exemptions
A debtor who files for a consumer bankruptcy in Michigan, whether in the eastern or western district, can choose either the Michigan bankruptcy exemptions or the federal exemptions. Many Michigan debtors in bankruptcy choose the Michigan exemptions, but a careful analysis must be performed because the exemption amounts may be different and the types of property are also not technically the same.
All of the following are exempt, regardless of number or amount - family pictures, arms and accoutrements required by law to be kept by a person, clothing and wearing apparel, excluding furs, cemeteries, tombs, and rights of burial in use as repositories for the dead of the debtor's family or kept for burial of the debtor, and professionally prescribed health aids.
Food and utilities necessary for 6 months to "live comfortably" for the debtor and each member of the debtor's household.
The interest, not to exceed a value of $600 in each item and an aggregate value of $3,825, in household goods, furniture, utensils, books, appliances, and jewelry.
The interest, not to exceed $650 in value, in a seat, pew, or slip occupied by the debtor or the debtor's family in a house or place of public worship.
The interest, not to exceed $2,550 in value, in crops, farm animals, and feed for the farm animals.
The interest, not to exceed $650 in value, in household pets.
The interest, not to exceed $3,525 in value, in 1 motor vehicle. The motor vehicle bankruptcy exemption is important for many, but if a vehicle secures a debt and the debtor is not current in payments, the vehicle may be lost to the creditor.
The interest, not to exceed $650 in value, in 1 computer and its accessories.
The interest, not to exceed $2,550 in value, in the tools, implements, materials, stock, apparatus, or other things to enable a person to carry on the profession, trade, occupation, or business in which the person is principally engaged.
Money or other benefits paid, provided, allowed to be paid or provided, or allowed, by a stock or mutual life, health, or casualty insurance company because of the disability due to injury or sickness of an insured person, whether the debt or liability of the insured person or beneficiary was incurred before or after the accrual of benefits under the insurance policy or contract, except that this exemption does not apply to actions to recover for necessities contracted for after the accrual of the benefits.
All individual retirement accounts, including Roth IRAs, or individual retirement annuities as defined in section 408 or 408a of the internal revenue code, 26 USC 408 and 408a, and the payments or distributions from those accounts or annuities. This exemption applies to the operation of the federal bankruptcy code as permitted by section 522(b)(2) of the bankruptcy code, 11 USC 522. This exemption does not apply to the amount contributed to an individual retirement account or individual retirement annuity within 120 days before the debtor files for bankruptcy. This exemption does not apply to any of the following:
(i) The portion of an individual retirement account or individual retirement annuity that is subject to an order of a court pursuant to a judgment of divorce or separate maintenance.
(ii) The portion of an individual retirement account or individual retirement annuity that is subject to an order of a court concerning child support.
(iii) The portion of an individual retirement account or individual retirement annuity that is attributable to contributions to the individual retirement account or premiums on the individual retirement annuity, including the earnings or benefits from those contributions or premiums, that, in the tax year made or paid, exceeded the deductible amount allowed under section 408 of the internal revenue code, 26 USC 408. This limitation on contributions does not apply to a rollover of a pension, profit-sharing, stock bonus plan, or other plan that is qualified under section 401 of the internal revenue code, 26 USC 401, or an annuity contract under section 403(b) of the internal revenue code, 26 USC 403.
The right or interest of a person in a pension, profit-sharing, stock bonus, or other plan that is qualified under section 401 of the internal revenue code, 26 USC 401, or an annuity contract under section 403(b) of the internal revenue code, 26 USC 403, if the plan or annuity is subject to the employee retirement income security act of 1974, Public Law 93-406, 88 Stat. 829. This exemption does not apply to any amount contributed to a pension, profit-sharing, stock bonus, or other qualified plan or a 403(b) annuity if the contribution occurs within 120 days before the debtor files for bankruptcy. This exemption does not apply to the right or interest of a person in a pension, profit-sharing, stock bonus, or other qualified plan or a 403(b) annuity to the extent that the right or interest is subject to either of the following:
(i) An order of a court pursuant to a judgment of divorce or separate maintenance.
(ii) An order of a court concerning child support.
The interest of the debtor, the codebtor, if any, and the debtor's dependents, not to exceed $38,225 in value or, if the debtor or a dependent of the debtor at the time of the filing of the bankruptcy petition is 65 years of age or older or disabled, not to exceed $57,350 in value, in a homestead. The homestead bankruptcy exemption is one of the most important exemptions and critical for many debtors in determining whether to file for Chapter 7 or Chapter 13.
Property described in section 1 of 1927 PA 212, MCL 557.151, or real property, held jointly by a husband and wife as a tenancy by the entirety, except that this exemption does not apply with regard to a claim based on a joint debt of the husband and wife.
If the owner of a homestead dies, leaving a surviving spouse but no children, the surviving spouse before his or her remarriage, unless the surviving spouse is the owner of a homestead in his or her own right, may exempt the homestead and the rents and profits of the homestead.
Contact Michigan Attorney Andrew Steiger for More Information
If you are considering bankruptcy, understanding how the exemptions may help you is important prior to filing. Contact attorney Andrew Steiger at Steiger Tax Law for a free consultation to discuss your situation and what legal options are available. Contact him at (248) 259-6367 or by email at Andrew.Steiger@SteigerTaxLaw.com.