One of the most pervasive myths about bankruptcy is the incorrect belief that the courts will demand that you liquidate your assets, up to and including your home. The truth is far more complicated, and a variety of factors will impact whether you need to liquidate anything at all.
First of all, liquidation is only necessary in Chapter 7 bankruptcy. Those who pass the means test for Chapter 7 will have to look at their overall assets and determine if they are at risk for court-ordered asset liquidation. Certain assets are exempt or protected by state and federal bankruptcy statutes. Michigan does allow anyone filing to use federal exemptions instead of the state exemptions.
Those who do not qualify for Chapter 7 bankruptcy can instead file for Chapter 13 restructuring. Because Chapter 13 bankruptcy does not involve an immediate discharge of debts, there are no asset liquidation requirements for Chapter 13 filings.
Michigan lets you protect some of your home value in bankruptcy
For many modern adults, the equity developed in their home represents the most substantial amount of savings accrued in their life. It may even exceed the total savings in their retirement account. Clearly, liquidating the financial value of your home equity will have a profound impact on your financial stability and future.
Thankfully, Michigan allows filers seeking Chapter 7 protections to exempt as much as $34,450 from liquidation. Those who are over the age of 65 can have up to $51,650 in equity.
Michigan offers several other exemptions for your property
Your equity in your home isn’t the only exempt property. You can also protect up to $3,715 in value in your personal vehicle. That value can only be in one vehicle. You can exempt up to $3,450 in household goods, your burial plot, all of your clothing and family pictures, and even enough food and fuel to provide for your family for a whole six months.
The law also extends protections to deposits you may have made into various retirement accounts or accrued value in a pension. Generally, that protection does not cover deposits made in the 120 days leading up to filing for bankruptcy. However, it does protect the deposits you made before that.
Understanding exemptions helps you make informed financial decisions
The choices you make before and during bankruptcy will impact the success of the proceedings and your life for years to come. The better you understand the exemptions that you qualify for under state bankruptcy law, the better you can plan and structure the process for optimal financial benefit.
Talking with an experienced Michigan bankruptcy attorney can help you determine what bankruptcy protections would be best for your specific financial circumstances.