Michigan Bankruptcy

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Michigan Bankruptcy
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michigan bankruptcyConsidering Filing for Bankruptcy in Michigan?

Local Bankruptcy Lawyers Explain Your Options and Exemptions

In most cases, all it takes is one catastrophic event or one turn of bad luck to take you from financially stable to drowning in unmanageable debt. Perhaps you suffered an injury or illness that left you with crushing medical debts. Maybe you lost your job or made an investment that failed to pay off. Whatever the reason, if you are struggling with overwhelming debt, then filing for bankruptcy may be a viable option to help you reclaim control of your finances. Despite the stigma sometimes associated with bankruptcy, this process can help you end creditor harassment, save your house from foreclosure and discharge certain debts that you cannot repay. The details of the process will depend on your circumstances when you decide whether to file for bankruptcy. However, the end goal is still the same: eliminate your debts and give yourself a fresh start financially.

There are two main types of consumer bankruptcy: Chapter 7 and Chapter 13. Although either can relieve you of unwanted debts, they work very differently. An experienced Michigan bankruptcy lawyer can offer you advice on which choice is best for your unique situation, and may be able to offer you bankruptcy alternatives as well. Below, local attorneys explain the basics of both types of bankruptcy and list the exemptions you may be able to use in your case.

What Is Chapter 13 Bankruptcy?

Chapter 13 bankruptcy involves a repayment plan, allowing you to keep all of your assets, and is usually better for people who have a steady income. Important characteristics of Chapter 13 include:

  • Income requirements and debt limits. Your eligibility for Chapter 13 debt relief typically depends on whether you have a steady monthly income that is sufficient to meet your expenses as well as the requirements of a payment plan. Additionally, you cannot file Chapter 13 if your debts exceed a certain amount, though the qualifying limits change yearly.
  • Repayment plan. When you file for Chapter 13 bankruptcy, you must detail how much you owe and how much you can pay back each month. You may have some flexibility with this plan, but you must usually pay a substantial portion of your disposable income each month. The court will review your plan to see if it is fair and workable. If the court accepts your plan, then you must remain current with your payments throughout the bankruptcy process. You make your monthly payments to a bankruptcy trustee, who in turn pays your creditors in order of priority.
  • Typically lasts three to five years. Unlike Chapter 7, which is over quickly, the Chapter 13 repayment plan usually lasts between three and five years. However, you may keep all of your property.
  • Discharges unsecured debts and allows you to manage secured debts. At the end of the bankruptcy process, your remaining unsecured debts will be discharged. Additionally, the repayment plan can allow you to become current on certain debts, like your mortgage, which may survive.
  • Certain debts survive Chapter 13 bankruptcy. Some debts are ineligible for discharge, including certain back taxes, student loans and child support payments. However, you must be current with your payments on these debts by the end of Chapter 13 bankruptcy.

What Is Chapter 7 Bankruptcy?

Chapter 7 bankruptcy is sometimes called “liquidation bankruptcy,” and is usually best for low-income individuals who have few assets. Important characteristics of Chapter 7 bankruptcy include:

  • The means test. To be eligible to file this kind of bankruptcy, you must pass the “means test,” which compares your monthly income to the average income of a family of the same size. If your income does not exceed the median income for a similar household in your state, then you automatically qualify for Chapter 7 relief. If your income is more than the median, then you still may be eligible for Chapter 7, depending on the circumstances.
  • Liquidation of non-exempt assets. When you file Chapter 7 bankruptcy, the court appoints a trustee who examines your finances and assets. Michigan bankruptcy laws allow you to automatically keep certain property (see below). Depending on your situation, most or all of your property may be exempt. However, the trustee will liquidate or sell all non-exempt property, and use the money to pay a portion of your outstanding debts.
  • Typically lasts three to six months. The entire Chapter 7 bankruptcy process typically lasts between three to six months.
  • Discharges unsecured debts. At the end of the bankruptcy process, the court will grant you a discharge. This effectively erases all outstanding unsecured debts – you will not ever have to pay them back. However, you cannot file for Chapter 7 bankruptcy again for eight years.
  • Certain debts may survive Chapter 7 bankruptcy. While bankruptcy can wipe away much of what you owe, certain debts cannot be discharged. Secured debts, such as a mortgage or car loan, cannot be discharged unless you also surrender the property. Additionally, overdue child support payments, certain types of back taxes and student loans are ineligible for discharge.

What Are the Michigan Bankruptcy Exemptions?

When you file for Chapter 7 bankruptcy, Michigan bankruptcy law allows you to exempt certain assets from liquidation. This means that you can keep a certain amount of property and money; the bankruptcy trustee cannot liquidate it to pay your debts. The Michigan bankruptcy exemptions include:

Homestead. Real property, including condominium, up to $37,775 (if over 65 or disabled, up to $56,650). Spouse or child of deceased owner may claim the exemption. Unmarried co-owners and spouses may not double. Tenancies by the entirety are exempt without limit as to debts of one spouse.

Personal Property.  Clothing; household goods, furniture, jewelry, appliances, utensils and books up to $600 each or $3,775 total; food and fuel to last six months;  family pictures; church pew, slip or seat up to $650 for the entire family (cannot double); professional prescribed health aids; motor vehicle up to $3,475; household pets up to $650; crops, feed and animals up to $2,525; computer and accessories up to $650; burial plots and burial rights.

Wages. 60% of earned but unpaid wages for the  head of household; 40% for others; subject to following minimums: $15 per week plus $2 per week for each dependent other than the  spouse for the  head of household; $10 per week for others.

Pensions

  • Tax exempt retirement accounts (including 401(k)s, 403(b)s, profit sharing and money purchase plans, SEP and SIMPLE IRAs, and defined benefit plans).  
  • IRAS and Roth IRAs to $1,283,025. (This amount is set by federal law. See  Federal Bankruptcy Exemptions for updates on this dollar amount.)
  • Firefighters, police officers.
  • Judges and probate judges.
  • Legislators.
  • Public school employees.
  • State employees.
  • ERISA-qualified benefits as well as IRAs and Roth IRAS, except contributions within last 120 days.

Public Benefits

  • Crime victims' compensation.
  • Vietnam veterans' benefits.
  • Veterans' benefits for WWII veterans.
  • Korean War veterans' benefits.
  • Welfare benefits.
  • Workers' compensation.
  • Unemployment compensation.

Tools of Trade

  • Tools, implements, materials, stock, apparatus, and other things needed to carry on an occupation up to $2,525 total.
  • Arms and accouterments you are required to keep.

Insurance

  • Life insurance.
  • Trust funds or life insurance policies that are employer-sponsored.
  • Insurance proceeds held by an  insurer.
  • Fraternal benefit society benefits.
  • Disability, mutual life, or health benefits.

Miscellaneous. Particular business partnership property.

What Are the Federal Bankruptcy Exemptions?

Although most states require bankruptcy filers to use state-specific bankruptcy exemptions, Michigan law allows you to use either state or federal exemptions. However, you must choose one or the other – you cannot use parts of both. If you choose to use federal exemptions when you file for bankruptcy, then you may keep:

  • $23,675 of equity in your primary home. This is the homestead exemption; you can use it to protect residential real estate as long as you live there. However, this does not extend to investments in rental properties.
  • Your vehicle up to a value of $3,775.
  • Jewelry valued up to $1,600.
  • Household items worth up to a total of $12,625, as long as no single item is worth more than $600. This includes furniture, appliances, clothes, animals, books, etc.
  • Tools for your work, including books, valued up to $2,375.
  • A total of $12,625 in loan value, dividends or life insurance policy interest.
  • All health aids.
  • Reasonable spousal and/or child support payments.
  • All Social Security, unemployment, veteran’s and/or disability benefits.
  • Personal injury compensation up to $23,675 (economic damages only).
  • All retirement accounts. However, IRAs may only be exempt up to $1,283,025.
  • Up to $1,250 plus the unused portion of your homestead exemption up to $11,850. This is the wildcard exemption; you may use it to protect any kind of property or liquid assets. For example, you may use some of your wildcard exemption to protect the rest of your car, if its value exceeds the allotted $3,3775.

The federal government adjusts the limits of these bankruptcy exemptions every three years; the next adjustment should occur in April of 2019.

More Bankruptcy Questions? Ask the Lawyers or Find a Local Attorney

The bankruptcy process can be complex, so if you have questions or concerns about some aspect of Michigan bankruptcy law, then feel free to AskTheLawyers. Alternatively, if you need debt relief now, then consult our local listings to find a qualified attorney in your area.

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