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You Can Apply Michigan Chapter 7 Bankruptcy Exemptions to Keep Your Property

Often when people file a chapter 7 bankruptcy, they believe they will lose everything. That is not true. A debtor can use Michigan Chapter 7 Bankruptcy Exemptions to protect or shield their property. There are state or federal exemptions to protect your property. Consult with a Michigan bankruptcy attorney to review chapter 7 bankruptcy Michigan exemptions and how your assets will be protected after a bankruptcy filing.

Federal Bankruptcy Exemptions and Michigan Bankruptcy Exemptions

Michigan has a set of state bankruptcy exemption laws that can be applied. These Michigan bankruptcy exemptions have dollar amounts for each type of asset a Debtor is allowed to keep under state law. Michigan exemption laws are very generous in regards to the homestead exemption.

The US Bankruptcy Code also provides a system of exemptions that can be applied upon filing bankruptcy. These bankruptcy laws provide generous exemptions to Debtors.

It is highly advisable to talk to a law firm that specializes in the bankruptcy code. A bankruptcy attorney can provide legal advice on the application of the various exemption systems. The Michigan state exemption and federal exemption systems may be available to you if you consider filing for bankruptcy.

What is the Chapter 7 Bankruptcy Process Upon Filing as It Relates to the Chapter 7 Trustee

When someone filed for bankruptcy relief, the Court appoints a trustee to administer the bankruptcy case. One of the Trustee’ primary jobs is to liquidate or sell the Debtor’s “non-exempt” assets.

The Trustee’s role is to sell non-exempt assets for the benefit of the Debtor’s unsecured creditors. An unsecured creditor is a creditor that holds the unsecured debt, such as a credit card debt or medical debt.

When a bankruptcy filer starts their case, all of their property becomes the property of the bankruptcy estate. The Chapter 7 Trustee determines whether or not there are except assets by reviewing the Debtor’s schedules. Debtor schedules will list any item the Debtor owns that is not exempt. Non-exempt assets can be taken and sold by the Trustee.

Once the Trustee collects assets from the bankruptcy estate, they start a procedure for unsecured creditors to file claims. A secured creditor does not participate in this process.

Protect your property by using the Michigan Chapter 7 Bankruptcy Exemptions You Have Available

A bankruptcy filer will want to talk to a lawyer before they file the case. The Debtor signs a bankruptcy filing. The Debtor swears the items contained in the bankruptcy filing are truthful and accurate. It is not always easy or possible to amend their bankruptcy schedules later in the bankruptcy process.

Chapter 7 Bankruptcy Trustee Review of the Debtor’s schedules to Determine Non-Exempt Assets 

When a Debtor files a Michigan Chapter 7 Bankruptcy, they complete many forms and schedules. Among these is a list of assets under Schedules A and B. Schedule A deals with real property or real estate. Schedule B deals with all other property, such as personal property and cash. The Chapter 7 Trustee will review your schedules to determine if there are any non exempt assets.

The Debtor also files a Schedule C which lists the Debtors’ exemptions. You need to ensure that you exempt ALL your property to avoid the Trustee attempting to sell your property. The the Trustee finds non exempt assets he will collect those assets and sell them for the benefit of your creditors.

Does Michigan allow the use of federal bankruptcy exemptions?

Yes. Michigan allows a debtor to use federal bankruptcy exemptions. All states have one set of exemptions that apply in bankruptcy filings. Not all states allow federal bankruptcy exemptions. States such as Ohio only allow their state exemptions.

Federal Exemptions v Michigan Exemptions – Michigan Chapter 7 Bankruptcy Exemptions

There are two options for exemptions in Michigan. In Michigan, a Debtor can use Michigan Exemptions, or the Debtor may use federal exemptions. Some states only allow exemptions from one source or the other.

A Debtor will want to use the exemption scheme that provides the maximum exemption in their unique situation. It is advisable to have a bankruptcy attorney review your assets when considering bankruptcy.

The federal exemptions are usually the most generous and are used in a Michigan bankruptcy case. There are some instances where the Michigan state exemptions may be of more excellent value.

Homestead exemptions

For purposes of your homestead or residence under the federal system of exemptions, a Debtor is entitled to $25,150 in equity for purposes of their homestead exemption. A married couple, both of who are on the title, are entitled to a $50,300 homestead exemption. 

It is important to remember that the “equity” is the value you could sell your residence minus any debt you owe. If your house is worth $120,000 and you owe $100,000 in secured debt, then you have $20,000 in “equity.” It is this $20,000 in equity that you need to exempt when you file your bankruptcy case.

Under the Michigan state exemptions, a Debtor can deduct $40,475 in equity. Now, this amount cannot be doubled for a married couple. A Debtor over 65 can exempt $60,725 in home equity.  

As you can see, the state’s exemption can be advantageous over the federal exemptions. The problem with the state exemption scheme is that they are not as generous for other property types.

Vehicle exemptions

Under the federal bankruptcy exemption system, you can deduct $4,000 in equity in a vehicle. Again in the federal system, each Debtor can claim this $4,000 if both debtors are on the title. The state of Michigan exemptions only provides for $3,725 for a motor vehicle.

Household goods exemptions

The federal exemptions provide for $13,400 in the exemption for household goods. The state exemptions are only $4,050. Again a married couple can double the exemption under the federal system.

Jewelry exemptions

There is a $1,700 federal exemption for jewelry. There is no specific exemption for jewelry under the Michigan state exemption system. Jewelry is included in the household goods exemption for the state of Michigan.

Wildcard exemption

The federal exemption system also has a wildcard exemption. The wildcard exemption can be used on any property the Debtor chooses. The current federal bankruptcy exemptions amount for a wildcard exemption in the amount of $1,325. This can be increased by an additional $12,575 of any unused homestead exemption that the Debtor has available.

There are many common uses of the wildcard exemption. One of the most common uses is for an anticipated tax refund. Another is the return to the Debtor of monies received through garnishment.

Other property exemptions

There are several exemptions for property available for a debtor to protect their assets in a Chapter 7 bankruptcy. It is best to consult with an experienced attorney to discuss your situation. 

A common mistake individuals make is not exempting their assets when filing bankruptcy without an attorney. Remember, when you do not exempt your assets when you file for bankruptcy, the Trustee can seize them. The Trustee will sell the non-exempt assets for the benefit of your creditors.

Retirement benefits exemptions

Retirement benefit exemptions are very generous. It is essential that if you are considering filing bankruptcy, you should talk to an attorney. 

Almost all monies saved in a pension retirement plan, 401k, or 403b will usually be exempt. These retirement funds remain exempt under both the federal and Michigan state exemptions. IRA and Roth IRA contributions up to $1,362,000 are also exempt.

Bankruptcy Procedure for Non Exempt Assets

A common mistake individuals make is not exempting their assets when filing their bankruptcy petition without an attorney. Remember, when you do not exempt your assets when you file for bankruptcy, the Chapter 7 Trustee can seize non exempt property according to bankruptcy law.

The bankruptcy trustee will file a motion with the bankruptcy court for the surrender of the nonexempt asset. The Trustee will then sell the non-exempt assets for the benefit of your unsecured creditors.

Often, a Debtor will talk to an attorney after they have exhausted all of their assets to discuss bankruptcy. If you are thinking about filing for bankruptcy in Michigan, it is essential to talk to a Michigan bankruptcy attorney who can apply bankruptcy law to your situation.

It is best to talk to a lawyer early in your decision-making process. For example, it would rarely be advisable to liquidate retirement assets before you file bankruptcy.

What not to do if you have non-exempt property?

Non-exempt property is the property that cannot be exempt from Schedule C in your bankruptcy filing. Non-exempt property is property the bankruptcy trustee can take from you, sell and pay to your creditors.

Do not try to hide assets from the Court and Trustee

Hiding or attempting to mislead the Court or Trustee is a federal crime. This crime can result in your bankruptcy being denied. It can also involve possible jail time and hefty fines.

Do not transfer assets to family members or others

Do not transfer assets to family members or third parties. You lose any right to claim any exemptions on that property. The Trustee is also likely to go after that family member or a third party to retrieve the asset.  

Talk to a bankruptcy attorney if you have non-exempt property.

A bankruptcy attorney can assist you in structuring your bankruptcy filing in such a way you can maximize your allowed exemptions. It is possible to negotiate and possibly keep your non-exempt assets. A skilled bankruptcy attorney can help you make a plan to keep as much of your property as possible.

Another possibility to discuss is filing a Chapter 13 bankruptcy. In a Michigan Chapter 13 Bankruptcy, a Debtor can keep all of their non-exempt property. Chapter 13 Bankruptcy is common when the Debtor either has too much income to qualify for a Chapter 7 Bankruptcy or if the Debtor has too many assets. Your asset can be kept by submitting a Chapter 13 plan that takes this non-exempt property into account.