What Are the Michigan Bankruptcy Exemptions?

Why Are Michigan’s Bankruptcy Exemptions Important in a Chapter 7 Bankruptcy?

Simply put, exemptions are important laws that ensure you get to keep what you own during a Chapter 7 bankruptcy. Exemptions were created to ensure you can get a fresh financial start without having to give up important property that ensures you have a good basic standard of living.

Most Chapter 7 filers don’t lose anything when they file their case. But if you happen to own expensive property or property that’s not covered by an exemption, that property will be subject to review by the bankruptcy trustee. They can choose to sell the property and give the funds to your creditors. Again, this is pretty rare in Chapter 7 cases.

Does Michigan Allow Filers To Use Federal Bankruptcy Exemptions?

Yes. Bankruptcy filers in Michigan can choose between two sets of exemptions: federal bankruptcy exemptions and state exemptions so long as they've lived in Michigan for at least two years. Keep in mind that you can’t protect property by using both sets of exemptions. You have to pick the set that works best for you. If you decide to use Michigan's exemptions, you can also use the federal non-bankruptcy exemptions, which primarily protect retirement accounts.

To decide which set of exemptions is best for you to use, review each one with an eye toward what you most want to protect. We’ll lay them out side by side in this article, which should help.

Michigan Bankruptcy Exemptions

In most cases, bankruptcy exemptions in Michigan allow you to keep exempt property that you need to maintain a household and job. This includes personal property like clothing, home furnishings, and the equity you have in your car. It also covers real property like your home or land you own and intangible assets like money, insurance, and certain retirement accounts. 

Note that spouses in Michigan who file a joint bankruptcy may double most of the exemption amounts, whether they use the state or federal exemptions. One exception is the homestead exemption.

Real Property: The Michigan Homestead Exemption

The homestead exemption allows you to protect the equity in your home up to a specified amount. Under current state law, you can protect up to $46,125 of equity in your real property. The amount increases to $69,200 if you or one of your dependents is at least 65 or disabled. (Adjusted in 2023 for inflation.)

Michigan’s homestead exemption is higher than the federal homestead exemption, which allows an individual filer to protect $27,900 in their home.

To calculate your equity, subtract your outstanding mortgage loan amount from your home's current fair market value. So, if your home is worth $225,000 and you still owe $190,000 on your mortgage, you have $35,000 in equity. That's less than the state exemption amount, so your home will be safe.

Source: Mich. Comp. Laws § 600.5451(1)(m) and 11 USC § 522(d)(1)

Personal Property Exemptions

Michigan bankruptcy filers can also claim bankruptcy exemptions for personal property like jewelry, appliances, furniture, and clothing. Let’s look at some of the most commonly used personal property exemptions and compare them to the federal exemptions.

*Household goods include utensils, furniture, books, jewelry, and appliances.

Source: Mich. Comp. Laws § 600.5451(1)(c), 600.5451(1)(h), 600.5451(1)(i), 600.5451(1)(f), 600.5451(1)(e) and 11 USC § 522(d)

The following items are fully exempt under state law:

• All clothing (excluding furs) 

• All family pictures

• All professionally prescribed health aids

• Burial plots and burial rights

Wildcard Exemption

This is one area in which the federal exemptions may be more advantageous for people who have items not covered by other exemptions. That’s because Michigan doesn’t have a wildcard exemption, but the federal government does.

The federal wildcard exemption is $1,475. Also, if you don’t use the homestead exemption and you’re claiming federal exemptions, you get an additional $13,950 to use as a wildcard. The wildcard allows you to protect any property that’s not otherwise protected by an exemption. 

Source: 11 USC § 522(d)(5)

Motor Vehicle Exemption

Under state exemptions, you can protect the equity in a single vehicle up to $4,250. By contrast, the federal exemptions allow you to protect up to $4,450 in car equity.

You calculate your equity the same way we noted above for your home. That is, take the fair market value of the car and subtract what you owe on the loan, if you have one. If your vehicle is paid off, your equity is equal to the car's fair market value. In that case, it may be more difficult to protect your car using only the motor vehicle exemption.

Source: Mich. Comp. Laws § 600.5451(1)(g) and 11 USC § 522(d)(2)

Money Benefits

The final category of exemptions is money benefits, including pensions, retirement accounts, public assistance, and more.

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 120 days before filing bankruptcy. 

Simple, traditional, or Roth IRAs are also protected under the law up to $1,512,350. 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.

Exemptions protect pensions for police officers and firefighters, public school employees, state employees, probate judges and judges, and legislators.

Wage Exemption

Using Michigan’s exemptions, if you’re the head of household, you can protect up to 60% of earned but unpaid wages. And an exemption of $15 per week, along with $2 each week, is allowed for each dependent other than your spouse. Other people can protect up to 40% or $10 a week. 

Source: Mich. Comp. Laws § 600.5311

Public Benefit Exemptions

Several types of public benefits are fully exempt under the law, including:

• Crime victims’ compensation

• Unemployment compensation

• Korean or Vietnam War veterans’ benefits

• Worker’s compensation benefits

• Welfare benefits

Insurance

Insurance benefits are fully protected under state 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.

• Insurance proceeds that are held by an insurer are exempt.

• Fraternal society benefits are exempt.

• You can protect disability, health benefits, or mutual life benefits.

• You can protect trust funds and life insurance policies that are employer-sponsored. 

Need Help Filing Chapter 7 Bankruptcy in Michigan?

Filing bankruptcy in Michigan doesn’t mean that you have to give up all your possessions, such as your home and car. Exemptions allow you to protect certain items. You’ll need to decide whether Michigan’s exemptions or the federal bankruptcy exemptions will serve you better. If you’re a homeowner, consider that Michigan’s homestead exemption is higher than the federal homestead exemption. If you don’t own a home, the federal exemptions may be a better fit since they have higher exemptions for car equity and household goods, plus a generous wildcard exemption.

If you’re not sure whether the state or federal exemptions will be more beneficial for your case, you can schedule a free consultation with an experienced bankruptcy lawyer in Michigan. If you already know you want to file Chapter 7 and you have a simple case, you can use Upsolve’s filing tool to complete your bankruptcy paperwork for free.