Michigan Bankruptcy Exemptions

Bankruptcy promises a fresh start—and it works. You'll straighten out your finances and keep the things you need to work and live. But "exemption laws" protect essential property only, not unnecessary luxury goods. To prevent a costly property loss, you'll want to learn about:

• choosing between Michigan's exemptions and the federal bankruptcy exemptions
• what will happen to property you can't protect with an exemption, and
• whether you've lived in Michigan long enough to use Michigan's bankruptcy exemptions.

The information below will help. If you'd like to check for other common issues in your bankruptcy case, try using the ten-question bankruptcy quiz—it will flag areas you'll want to look into further. Or, if you'd like an exemption overview, read Bankruptcy Exemptions – What Can I Keep When I File for Bankruptcy?

Filing for Bankruptcy in Michigan

Bankruptcy is a federal process so it works the same way in every state. However, you'll use Michigan state law to protect your property. Although most states don't allow filers to choose bankruptcy exemptions, Michigan filers are fortunate because they have two choices—the state or the federal exemption system. You'll want to review each list carefully and compare it to the property you own because you can't use exemptions from both lists. If you decide to use Michigan's state exemptions, you can also use the federal nonbankruptcy exemptions.

Choosing an Exemption List in a Michigan Bankruptcy

To help you make an informed choice, we've charted key Michigan and federal exemptions and explain important differences. You'll also find links to complete federal exemption lists and more Michigan exemptions after the chart.

When using the chart, keep in mind that married couples who file jointly and own the property together can double the federal bankruptcy exemptions. Spouses can double most Michigan exemption amounts, but not all (we've noted those you can't double). Find out if filing for bankruptcy will affect your marital partner.

Our Exemption Analysis. Individual filers who own a home will likely fare better using Michigan's exemptions. However, because you can double the federal exemptions, married homeowners who aren't 65 or disabled can protect more equity using the federal bankruptcy exemptions.

Filers who don't own a home will likely protect more property using the federal list because of the higher motor vehicle and tools of the trade exemptions and the generous wildcard exemption. (Analysis is for illustration purposes only and won't apply in all cases.)

Other Michigan Bankruptcy Exemptions

Here are more Michigan exemptions, but it's not an exhaustive list. As with all exemptions, be sure to check for current amounts and qualification requirements.

Michigan Pension Exemptions

• 38.559, 38.1643, 38.1683 - Firefighters, police officers.
• 38.1057, 38.1683 - Legislators.
• 38.1346, 38.1683 - Public school employees.
• 38.1683 - State employees.
• 38.2308, 38.1683 - Judges and probate judges.

Michigan Public Benefit Exemptions

• 18.362 - Crime victims' compensation.
• 35.926 - Veterans' benefits for WWII veterans.
• 35.977 - Korean War veterans' benefits.
• 35.1027 - Vietnam veterans' benefits.
• 400.63 - Welfare benefits.
• 418.821 - Workers' compensation.
• 421.30 - Unemployment compensation.

Michigan Insurance Exemptions

• 500.2207 - Insurance benefits.
• 500.2209 - Life insurance benefits.
• 500.2210 – Employer-provided insurance benefits.
• 500.4054 - Insurance proceeds held by an insurer.
• 500.8181 - Fraternal benefit society benefits.

Miscellaneous Michigan Exemptions

• 449.25 - Particular business partnership property.
• 11 USC 541(b)(5)-(6) – Up to $6,825 in an education IRA and up to $6,825 in pre-purchased tuition credits.

Keep reading to learn what will happen to property you can't protect with an exemption.

What Happens to Property You Can't Exempt in a Michigan Bankruptcy?

It will depend on the chapter you file. In Chapter 7 bankruptcy, you lose property not covered by an exemption. The bankruptcy trustee responsible for managing your case will sell the property for the benefit of your creditors. In Chapter 13 bankruptcy, you can keep all of your property; however, that luxury comes at a price—literally. You'll pay your creditors the value of any property not covered by an exemption in your Chapter 13 repayment plan.

For example, say you own a car outright worth $3,000, and your state has a vehicle exemption of up to $5,000. Here's what would happen in each chapter.

• Chapter 7 Bankruptcy. If you file for Chapter 7 bankruptcy, you will get to keep your car because the exemption would protect the equity fully. In the same example, if your vehicle were worth $15,000, the bankruptcy trustee would sell your vehicle, pay you $5,000 for the exemption, and distribute the rest to your unsecured creditors.
• Chapter 13 Bankruptcy. In Chapter 13, you wouldn't need to pay extra to your creditors through your repayment plan. However, if the car were worth $15,000, you'd need to pay your creditors at least $10,000 (minus sales costs) through your plan.

Keep in mind that these examples don't take into account a vehicle loan. You'll find more information below.

Protecting a Financed Home or Car in a Michigan Bankruptcy

Many people wonder if they can wipe out a home mortgage or car loan and keep the property without paying anything more. The simple answer is "No." Protecting the equity with an exemption will keep the Chapter 7 trustee from selling it, and you won't have to pay extra to keep it in Chapter 13, but there are more steps to take.

First, in a Chapter 7 case, the mortgage or car payment will need to be current. Second, you'll need to be able to continue to make the payment. Why? Because when you purchased it, you gave the lender a property "lien." The lien created a secured debt that allows the lender to take back the property if you don't pay as agreed—even in bankruptcy. So if you're behind on the payment and file for Chapter 7, you'll lose the property. Instead, consider catching up on arrearages in Chapter 13.

For more information, read about how mortgages work in bankruptcy and how to file for bankruptcy without losing a car.

Michigan Bankruptcy Exemption Timing Rules

It's tempting to move to a state with significantly more generous bankruptcy exemptions when filing for bankruptcy. But it likely won't do much good. To prevent people from abusing the system, filers must live in the state for at least two years—otherwise, they must use the previous state's exemptions. Here's how it works.

• If you've made your permanent home (your "domicile") in your current state for at least two years, you can use the state's exemptions (or the federal exemptions if allowed).
• If your domicile hasn't been in the same state for two years, the rules get more complicated, so prepare yourself. In fact, it sounds so strange we'll explain it in three different ways so you know you didn't read it wrong. Here goes: You'll choose the state that you lived in the longest during the 180 days immediately before the two years before filing.

Did you get that? If not, here's a way to figure it out. Count back two-and-a-half years. Then ask yourself where you lived the longest during the first six months of that two-and-a-half-year period.

Still confused? Let's try an example. Suppose you planned to file on January 1, 2022. Your two-and-a-half-year period would start July 1, 2019, and you'd qualify to use the exemptions of whichever state you resided in the most during the July 1, 2019, through December 31, 2019 period. You wouldn't have to file your case there, but you'd use that state's exemptions. Hopefully, that helps!

Find out more in Chapter 7 Homestead Exemption in Bankruptcy.

Navigating Your Michigan Bankruptcy Case

Bankruptcy is an unusual area because it's essentially a qualification process. The laws provide instructions for completing a 50- to 60-page bankruptcy petition, and because all rules apply in every case, you can't skip a step.

One way to keep track of your research is to use the bankruptcy forms as an outline. You'll find links to the exemption-related bankruptcy forms and other exemption resources in the chart below. You can also look at the list of Chapter 7 and 13 bankruptcy forms to see where this topic fits in the bankruptcy scheme. And this handy bankruptcy document checklist will help you gather the things you'll need to complete the petition.

Need More Info?

We want to help you find the answers you need. Go to TheBankruptcySite for more easy-to-understand bankruptcy articles, or consider buying a self-help book like The New Bankruptcy by Attorney Cara O'Neill.

We wholeheartedly encourage research and learning, but online articles can't address all bankruptcy issues or the facts of your case. The best way to protect your assets in bankruptcy is by consulting with a local bankruptcy lawyer.

Updated August 31, 2021