What are the Michigan Bankruptcy Exemptions?

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Written by the Upsolve Team.  Reviewed by Andrea Wimmer, Esq.
Updated March 19, 2020

Summary

If you are considering filing bankruptcy in Michigan, you will probably have come across the terms federal bankruptcy exemptions and state exemptions. Many states in the US allow people to choose between the federal exemptions and state exemptions while others don’t. Michigan allows residents to choose between the federal bankruptcy exemptions and state exemptions. This is why you have more flexibility. However, keep in mind that you can’t protect property by using both sets of exemptions. You’ll have to pick the system that works best for you. A bankruptcy attorney can help you decide which exemptions are best for you. If you decide to use Michigan exemptions, then the federal nonbankruptcy exemptions will also be available to you. Spouses in Michigan who file a joint bankruptcy may double most, but not all, of the exemption amounts on the state exemption list. For example, Michigan spouses are restricted to one homestead exemption.

What are the Michigan bankruptcy exemptions, and why are they important in a Chapter 7 bankruptcy? 

For a lot of individuals experiencing financial hardship due to excess credit card debt and student loans, bankruptcy is one of the best options to get back on the road to financial recovery. However, many people in Michigan believe that filing Chapter 7 bankruptcy means that they will need to give up all assets, such as their car or home, and start over with almost nothing, which is not true. This is why many people often consider bankruptcy a last resort and do not fully understand how filing bankruptcy can help their financial situation.

Most people in Michigan are able to retain most of their property, such as clothes, furniture, TVs, computers, vehicles and much more.

If you are filing for Michigan bankruptcy, there are some ways to protect your valuable possessions, such as retirement accounts and pensions, while making the most of the exemptions in Chapter 7 bankruptcy. Actually, many people who file for Chapter 7 bankruptcy in Michigan are able to protect most, if not all, of their valuable possessions, thanks to the power of bankruptcy exemptions. Bankruptcy exemption laws allow you to keep certain kinds of property depending on the state you live in. Taking exemptions in Michigan bankruptcy simply means you may claim up to a specific amount for certain types of property, such as your home.

Also, note that some types of bankruptcy in Michigan don’t involve liquidation – the sale of your nonexempt property – at all. Even in those bankruptcy cases that may involve liquidation, most filers don’t have to give up anything as part of the bankruptcy process, which is great.

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Does Michigan allow the use of federal bankruptcy exemptions?

If you are considering filing bankruptcy in Michigan, you will probably have come across the terms federal bankruptcy exemptions and state exemptions. Many states in the US allow people to choose between the federal exemptions and state exemptions while others don’t. Michigan allows residents to choose between the federal bankruptcy exemptions and state exemptions. This is why you have more flexibility. 

However, keep in mind that you can’t protect property by using both sets of exemptions. You’ll have to pick the system that works best for you. A bankruptcy attorney can help you decide which exemptions are best for you. If you decide to use Michigan exemptions, then the federal nonbankruptcy exemptions will also be available to you. 

Spouses in Michigan who file a joint bankruptcy may double most, but not all, of the exemption amounts on the state exemption list. For example, Michigan spouses are restricted to one homestead exemption.

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Michigan Bankruptcy Exemptions

Most individuals filing for bankruptcy in the state are concerned about keeping specific assets, such as the family home or their car. Under Chapter 7, you can protect these common kinds of assets up to a certain extent specified in the law. This means that there’s a financial cap on the value of a vehicle or home value that you can protect. In most cases, bankruptcy exemptions in Michigan allow you to keep exempt property that you will need to maintain a household and job. The property includes items like clothing, furnishings, and some equity in a car. 

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Real Property - The Michigan Homestead Exemption

Among others, people filing Michigan bankruptcy can avail themselves of the important homestead exemption. The homestead exemption in Michigan is one of a list of important bankruptcy exemptions that are there to protect you from losing everything in your bankruptcy case. The exemption allows you to claim a bankruptcy exemption for the equity in your home up to a specified amount. Under current law, you can protect up to $38,225 of equity in your real property. The amount increases to $57,350 if you or one of your dependents is at least 65 or disabled.

The homestead exemption in the state is among the most important protections for many people; it is particularly important as property values in the state continue to increase. Under Chapter 7 bankruptcy, it means that if the equity in your home is lower than the exempted amount, then you will be able to protect the asset. On the other hand, if the equity is higher than the permitted amount under the law, your bankruptcy trustee may sell your house and pay you the exempt amount. 

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Personal Property Exemptions

Michigan bankruptcy filers can also claim bankruptcy exemptions for personal property like jewelry, appliances, furniture, and clothing, among others.  Broadly speaking, you might be able to protect a wide array of personal property and valuable assets, depending on your circumstances. Some of the Michigan bankruptcy exemptions you may use to protect your property in a Chapter 7 bankruptcy or Chapter 13 case include the following.

Motor Vehicle

In a Chapter 7 bankruptcy in Michigan, the Bankruptcy Code permits specific amounts for exemptions in order to protect your property. Note that if you’re still making payments on your motor vehicle, it’s likely that your vehicle has a lower value than the total outstanding balance. There is no equity in this case and nothing has to be exempted. 

On the other hand, where your vehicle is paid off or the amount you owe is lower than the car’s value, then the equity in the car must be protected with an exemption. Under state exemptions, you can protect the equity in a single vehicle up to $3,525 using the vehicle exemption Section 600.5451(1)(g).

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Other Personal Property 

You can also protect the following personal property. Household goods, such as utensils, furniture, books, jewelry, and appliances, valued up to $600 per item and $3,825 in total. The exemption is available under Section 600.5451(1)(c). 

All clothing is exempt under Section 600.5451(1)(a)(iii); however, this does not include furs. Michigan allows you to protect wearing apparel. Some courts across the US have included wristwatches in the definition of clothes or wearing apparel. All family pictures are exempt under Section 600.5451(1)(a)(i). And you can protect $650 in computer accessories under Section 600.5451(1)(h).

Also, all professionally prescribed health aids are exempt under the law. You can also protect your household pets up to a value of $650. Michigan law also exempts crops, animals, and feeds up to $2,550.

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Money Benefits

Pension and Retirement Account Exemption

Most retirement accounts and pensions are completely protected under the law. You can protect individual retirement accounts as well as annuities except for any amounts that were contributed within the 120 days before filing bankruptcy. The exemption is covered under Section 600.5451(1)(k). And simple, traditional, or Roth IRAs are also protected under the law up to a specific dollar amount under Section 522(b)(3)(C)(n). You can also protect pension, stock bonus, profit-sharing, or other qualified plans with the exception of amounts that were contributed in the 120 days before filing.

  • Section 38.559 covers police officers and firefighters.

  • Section 38.1346 covers public school employees.

  • Section 38.40 covers state employees.

  • Section 38.2308 covers probate judges and judges.

  • Section 38.1057 covers legislators.

Wage Exemption

If you are the head of household, you can protect up to 60 percent of earned but unpaid wages. And an exemption of $15 a week along with $2 each week is allowed for each dependent other than your spouse. Other people can protect up to 40 percent or $10 a week. The wage exemption is covered under Section 600.5311.

Public Benefit Exemptions

Crime victims’ compensation is fully exempt under the law. You can protect unemployment compensation and Korean War veterans’ benefits as well. Benefits for Vietnam War veterans are exempt under the law. Worker’s compensation benefits and welfare benefits are also exempt.

  • Section 18.362 covers crime victims' compensation

  • Section 35.1027 covers Vietnam veterans' benefits

  • Section 35.977 covers Korean War veterans' benefits

  • Section 35.926 covers veterans' benefits for WW 2 veterans.

  • Section 400.63 covers welfare benefits

  • Section 421.30 covers unemployment compensation

  • Section 418.821 covers workers' compensation.

Insurance

It is fully protected under the law regardless of the amount. Also, the benefits paid on behalf of the employer are exempt. You can protect benefits paid by any investment in stock as well as mutual life, casualty or health insurance.

  • Life insurance is exempt under Section 500.2207.

  • Insurance proceeds that are held by an insurer are exempt under Section 500.4054.

  • Fraternal society benefits are exempt under Section 500.8181.

  • You can protect disability, health benefits or mutual life benefits under Section 600.5451 

  • You can protect trust funds and life insurance policies which are employer-sponsored under Section 500.2210.

Other Michigan Exemptions

Tools of Trade

This is another key exemption. Tools, materials, implements, stock, apparatus, motor vehicle, horse and harness, are exempt up to $1,000 in total, provided they are necessary to carry on your trade, profession, occupation, or business.

Partnership Property

Particular business partnership property is exempt under Section 449.25.

Cemeteries and Burial Funds

Note that you can also protect all burial plots and burial rights under the law. 

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Filing Chapter 7 bankruptcy?

Filing bankruptcy in Michigan doesn’t mean that you will need to give up all your possessions, such as your home and car. The above exemptions enable you to protect certain items. You should contact an experienced bankruptcy lawyer in Michigan to see how they can help you make the most of these exemptions. Whether you are a wage earner, a business owner, retired, or otherwise, they can address your specific financial situation with a strategic plan to help put extreme indebtedness behind you. Developing a transparent attorney-client relationship will expedite this process. This will help you enjoy life again and get a fresh start. 

Some property is exempt regardless of the value, while other property is protected only up to a specific dollar amount. Keep in mind that the idea behind bankruptcy exemptions is that a person filing for bankruptcy shouldn’t be stripped of basic things that are needed for a living – such as a shelter, clothing, a car, furniture, and the like.

From exemption planning and property protection to the resolution of your bankruptcy case in bankruptcy court, the attorney will be by your side in the bankruptcy court. The attorney will tell you, for example, how exemptions can differ under Chapter 7 and Chapter 13 and how to file bankruptcy generally. If you are not able to afford a bankruptcy attorney to help you, you can take this simple and short quiz in order to find out if Upsolve’s free web app is right for you. 

Declaring bankruptcy in Michigan can sometimes be a complicated legal process; however, with help from your bankruptcy attorney, the proceedings will become relatively quick, and you will get back to your feet. The attorney can walk you through the whole process, help you gather the documentation needed to file your case, and give you guidance and assistance to protect your assets.

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About the authors

Andrea Wimmer, Esq.

Andrea practiced exclusively as debtors’ counsel in consumer chapter 7 and 13 cases for more than 10 years before joining Upsolve, first as a contributing writer and editor and ultimately joining the team full time in August 2019. While in private practice, Andrea handled all ban... read more

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