Navigating Michigan’s Homestead Exemption and Out-of-State Property Bankruptcy Filings
Filing bankruptcy can be a scary proposition, especially if you own certain assets that you wish to protect. One of the main assets that comes into question in bankruptcy cases is a primary residence.
Luckily, there are federal bankruptcy exemptions that are in place that can help to shield your home from the bankruptcy process and from creditors. There are also state-specific bankruptcy exemptions that Michigan offers in lieu of the ones offered at the federal level.
As long as you have resided in Michigan for at least two years, you can choose between either the state or federal exemptions that are offered to you. This is good news, as Michigan’s homestead exemption is currently higher than the federal one — $46,125 compared to only $27,900 and even greater if you or your dependent are disabled or a senior citizen.
If you’re not a homeowner, it might behoove you to choose the federal exemptions, as they include greater protection for personal property and cash by providing a wild card exemption that can be used on anything you list as an asset in the bankruptcy.
Regardless of whether you are a homeowner or not, it’s important to understand what your rights are in bankruptcy cases. Consulting with an experienced bankruptcy attorney such as the ones at Babi Legal Group is always a good idea in this regard.
Michigan Bankruptcy Exemptions vs. Federal Bankruptcy Exemptions
No matter what your situation, it’s always good to know what your rights are and what exemptions are available to you. This is especially important in bankruptcy cases, since you can only use exemptions that either the federal government or your state government offers; you cannot use both.
As mentioned above, it may behoove you to choose the Michigan bankruptcy exemptions if you’re a homeowner, since the limit is higher than what the federal government provides.
In addition, doing so will allow you to take advantage of the federal nonbankruptcy exemptions, if you’re able to qualify for them. Some examples include retirement benefits if you receive Social Security benefits, survivor’s benefits, and death and disability benefits.
If you want to make an informed choice, you need to understand the differences between what exemptions Michigan offers and what exemptions are offered through the federal government. Only then can you make the choice that’s best for you.
The Michigan Homestead Exemption
The Michigan Homestead Exemption allows people who have resided in Michigan for at least two years to protect the equity that they have built in their home, up to as much as $46,125. If you or a dependent is at least 65 years old or disabled, the exemption amount increases to $69,200. These amounts may even be greater as Michigan is considering to possibly increase these amounts through new legislation in 2025.
What the state’s Homestead Exemption allows you to do is protect the ownership interest you have in your home. To determine the specifics of the program, you’ll need to fully read the homestead statute to see how you can take advantage.
To understand how valuable this can be for you, it’s important to know how much equity you have in your home. To calculate this, simply subtract how much you owe on your outstanding mortgage from the current fair market value of your home.
Claiming Exemptions in a Michigan Bankruptcy
During a bankruptcy proceeding, you’ll be required to file a list of all your assets as well as their values with the United States Bankruptcy Court. You’ll also need to provide proof of ownership of these items, which prevents people from claiming they own something that they actually don’t.
While this may seem like a simple process, it can actually be quite complicated. Even one minor mistake in filling out the paperwork can be catastrophic to your financial future.
In Michigan, you’ll have to file a form known as “Schedule C: The Property You Claim as Exempt” with the bankruptcy court. In addition, you’ll have to file a Statement of Intention form in chapter 7 cases, which will indicate whether you wish to keep the asset or surrender the property as part of your bankruptcy filing.
If you want to ensure that your assets are protected properly, and that the exemption process is handled correctly, it’s important to hire an experienced bankruptcy attorney who is well-versed in Michigan law.
Protecting Out-of-State Property
Many people own property in one state that they don’t call their primary residence. If you are a Michigan resident but own property outside of the state, you may actually be able to protect that property in bankruptcy using the exemptions that Michigan provides its residents.
This isn’t an across-the-board rule, though, as a lot will be determined by where that other property is located and what laws that state has in place.
If you find yourself in this situation, you’ll want to consult with a qualified bankruptcy attorney so you can understand how the property you own out of state will be treated during a Michigan bankruptcy proceeding.
The Role of the Bankruptcy Trustee
Once you file for bankruptcy, the court will assign a bankruptcy trustee to your case. This person is responsible for viewing your petition to ensure that you’re complying with all applicable bankruptcy laws.
In addition, the trustee in a chapter 7 case also could be responsible for selling off your non-exempt assets as a way to pay your creditors. Again, this depends on the type of bankruptcy that you are filing as well as the assets you have and the debt that you owe.
Regardless of those details, the bankruptcy trustee’s role is to ensure that the process is fair and that you and your creditors are all treated equally.
Working with the Bankruptcy Trustee
As the bankruptcy trustee plays such an important role in your case, it’s essential to cooperate with them and provide whatever documentation is required. If you fail to cooperate with the trustee, it can result in your bankruptcy case being dismissed outright — which will leave you and your assets susceptible to your creditors.
While the bankruptcy trustee may seem like an intimidating person who is asking for intrusive information, there are some simple tips that will make working with the trustee a smooth process.
First, be very honest and transparent about your financial situation with your bankruptcy attorney upon your initial meeting. Remember that they are here to help you, since their work will ultimately ensure that you are able to get rid of certain debts while keeping certain assets.
Provide all required and requested documentation to them in a timely manner. Whenever the trustee requests information from you, respond to them in a prompt manner.
All of this will engender trust with the trustee and ensure a good working relationship.
Filing for Bankruptcy in Michigan
To file for bankruptcy in Michigan, you must complete a credit counseling course in addition to filing a bankruptcy petition with the bankruptcy court. The course is meant to help educate people who are filing bankruptcy on the financial pitfalls that lie ahead so that they can hopefully avoid repeating this situation in the future.
The bankruptcy court will require you to provide financial documentation as proof that you need relief. This includes pay stubs, tax returns and any other income paperwork as it applies to you.
To file for bankruptcy in Michigan, you must be a resident of the state and meet the eligibility requirements for Chapter 7 or Chapter 13 bankruptcy, depending on which one you are filing for.
Bankruptcy Process and Timeline
From start to finish, the bankruptcy process usually takes several months. How long your case will take depends on how complex it is and the workload of the bankruptcy court at the time you file.
In addition to filing the forms listed above, you’ll be required to attend a creditors’ meeting as part of your bankruptcy case. At this meeting, the bankruptcy trustee and your creditors will have a chance to attend and ask you questions related to your petition.
You might also have to attend a confirmation hearing, which is where the bankruptcy court will review your bankruptcy plan.
Special Considerations
If you have property that you are financing through a loan, such as a home or a vehicle, you might be able to keep it if you continue making payments. If you fall behind on these payments, though, you could be at risk of losing that property.
This is yet another reason why it’s so important to consult with a qualified local bankruptcy attorney so you can fully understand your options when it comes to financed property.
How to Navigate Michigan Bankruptcy
There are many state-specific bankruptcy exemptions offered in Michigan, and they can be used in addition to some of the federal bankruptcy exemptions. One of the key ones for property owners is the homestead exemption, which can protect the home in which you live.
If you want to ensure that your assets are protected and that the exemption process is handled properly, it’s essential to work with a qualified bankruptcy attorney.
The experts at Babi Legal Group have more than 20 years of real estate experience and more than 15 years of experience in bankruptcy, debt collection and debt settlement. For more information and to learn your rights, please contact us today.
