Last updated on
Posted by: National Bankruptcy Forum
Last updated July 31, 2017.
When you think of Michigan, you probably think about cars, or Detroit. That’s because Detroit is the car capital of the world. It’s home to the first air-conditioned car, manufactured in 1939 by the Packard Motor Company.
University of Michigan is also the first university to be established by any of the states, as well as the first land-grant university, Michigan State. Michigan also has the most shoreline out of any state except Alaska.
The unemployment rate in Michigan, once the nation’s worst, has been on the decline, and stands at 3.8% as of June 2017. The auto industry has certainly recovered, experiencing a banner year in 2015 with record annual auto sales. The state’s biggest industries are trade, transportation, and utilities; educational and health services; and professional and business services.
Despite its healthy recovery from the Great Recession, Michigan residents may still be in need of help for their own financial situation. That’s where bankruptcy comes in.
Filing Chapter 7 Bankruptcy in Michigan
Chapter 7 bankruptcy or “straight bankruptcy” is a process designed to help consumers start over financially. Chapter 7 discharges unsecured debts such as high-interest credit cards and medical bills. Although the process is organized under federal law, Chapter 7 cases vary by jurisdiction. Each state, as well as the federal government, has enacted exemption laws that dictate the amount of property a debtor can keep through the bankruptcy process. In most cases, exemption laws protect all of the assets of the debtor — allowing them to file for bankruptcy and keep all of their property.
In addition to unique exemption laws, each state has different income guidelines for determining whether the debtor is eligible to file for Chapter 7. Thanks to bankruptcy reform in 2005, debtors seeking to file Chapter 7 bankruptcy must demonstrate that they do not have enough disposable income to pay something back to their creditors. If your income over the last 6 months is below the median in your state, you will automatically be eligible to file Chapter 7. If, on the other hand, your income is greater than the state median over the last 6 months for a household of your size, you will need to subject your monthly expenses to the means test.
The means test is a formula that calculates disposable income. If you have too much spoils left over at the end of the month, there is a presumption that you should be filing for Chapter 13 instead of Chapter 7 bankruptcy.
Michigan Bankruptcy Exemptions
In Michigan, debtors can choose between the state or federal exemptions. Generally speaking, most debtors will elect to utilize Michigan bankruptcy laws because they allow more property to be protected. Michigan Compiled Laws 600.5451.
Below are a few of the most popular bankruptcy exemptions if you choose to file using Michigan’s system.
Michigan vs. Federal ExemptionsThe top 5 exemptions under Michigan law compared to federal law.
|Type of exemption||Michigan law||Federal law|
|Homestead||$38,225; for age 65 and older, it's $57,350||$23,675 of equity in principal place of residence|
|Personal property||$3,825 total in household goods, furnishings, appliances, jewelry ($600 per item), and computer equipment ($650)||$12,625 aggregate value on household goods, plus federal wildcard exemption applicable ($1,250 plus $11,850 of any unused portion of your homestead exemption)|
|Wages||60% of earned but unpaid wages for head of household; 40% for others||Income you've earned but not yet received becomes part of your bankruptcy estate|
|Pension/retirement||Most exempt, except contributions made within 120 days of filing for bankruptcy to individual IRAs and pensions||Exempt, with a cap of about $1.28 million on IRAs and Roth IRAs|
Under the Michigan exemption system, each homeowner and his or her dependents may exempt up to $38,225 of his or her interest in his or her home or other property covered by the homestead exemption. If the homeowner is age 65 or older or is disabled, the exemption amount is $57,350 (a surviving spouse can claim this, as well). Married couples are not permitted to double the homestead exemption, though they are permitted to double most other exemptions.
Michigan also allows debtors to protect up to $3,525 of equity in a car, up to just one vehicle.
A total value of $3,825 in personal property may be exempt under Michigan bankruptcy law. This includes household goods such as furniture, clothing, appliances, and books. Jewelry, up to $600 per item, is also included, along with $650 in computer equipment.
Debtors can protect up to 60% of earned but unpaid wages for head of household, or $15 per week plus $2 for each dependent aside from the spouse. Others can protect 40% of earned but unpaid wages, or $10 per week.
These are mostly fully protected, with the exception of the amounts in IRAs and pension or profit-sharing plans that are contributed within 120 days of filing bankruptcy. Education IRAs are protected up to $6,425; traditional, simple, or Roth IRAs are protected up to $1.28 million.
The above figures are adjusted every three years. It should also be noted that on Feb. 24, 2011, the Sixth Circuit Bankruptcy Appellate Panel found Michigan’s bankruptcy-only exemptions to be unconstitutional. There is a state of flux within the law, making it all the more important to consult a Michigan bankruptcy attorney if you’re considering filing for bankruptcy.
Will I be able to afford bankruptcy?
Michigan’s economy has been among the hardest hit in the country and even those facing severe financial distress are often concerned that they won’t be able to afford a bankruptcy attorney. While the cost of bankruptcy can be high, especially for families who are struggling to get by, most bankruptcy law firms offer flexible payment options for their clients.
To file Chapter 7 bankruptcy in Michigan, the average attorney fee in the Detroit area is approximately $1,000 to $1,300. This won’t include the filing fee, which was recently raised to $335.
The cost to file Chapter 13 bankruptcy is higher then Chapter 7, but attorneys are often willing to accept payment of their fee through the Chapter 13 plan. Detroit bankruptcy attorney Pat Wilson says Chapter 13 fees vary by complexity, but start at around $2,500. The filing fee, meanwhile, for Chapter 13 bankruptcy is $310 — this is uniform nationwide.
If you find yourself struggling with debt and are curious about what bankruptcy may be able to do for your finances, contact an attorney. Most offer free consultations and will work with you to make the process affordable.
Michigan Bankruptcy Court Locations
Michigan bankruptcy courts are divided into two districts: the Eastern District and the Western District. The Eastern District of Michigan Bankruptcy Court is further divided into divisions: Bay City, Detroit, and Flint all have a bankruptcy court to serve local debtors. Similarly, on the west side of the state, Grand Rapids and Marquette both house bankruptcy courts.
The city that you live in will determine the location of your meeting of creditors as well as the bankruptcy court that will hear any issues that may arise in your case.
Bay City: 111 First St., Bay City MI 48708, (989) 894-8840
Detroit: 211 W. Fort St., Detroit MI 48226, (313) 234-0065
Flint: 226 W. Second St., Flint MI 48502, (810) 235-4126
Grand Rapids: 1 Division Ave. N, Room 200, Grand Rapids MI 49503, (616) 456-2693
Marquette: 202 W. Washington St., Third Floor, Marquette MI 49855, (906) 226-2117