For years, Michigan’s bankruptcy exemption laws have lagged behind the realities of today’s economy. Home values have increased dramatically, vehicles cost more than ever, and retirement savings have become increasingly important. Unfortunately, many of Michigan’s bankruptcy exemptions simply had not kept pace.

That is about to change.

The Michigan Supreme Court has now cleared the way for House Bill 4901—legislation that had been stalled for months—to finally be presented to Governor Gretchen Whitmer. The Governor is widely expected to sign the bill into law, resulting in the most significant overhaul of Michigan’s bankruptcy exemptions in decades.

For individuals considering Chapter 7 or Chapter 13 bankruptcy, these changes could make filing bankruptcy substantially more attractive and allow many people to protect significantly more property than under current law.

Why Bankruptcy Exemptions Matter

When someone files bankruptcy, they do not lose everything they own.

Both federal and Michigan law allow debtors to claim certain property as exempt, meaning creditors and the bankruptcy trustee cannot take that property for the benefit of creditors.

The larger the exemptions, the more property a person can keep.

That is why changes to Michigan’s exemption laws are such a big deal.

The Major Changes

Although everyone has focused on the political process surrounding House Bill 4901, the real story is how much better these exemptions will protect Michigan families.

A Much Larger Homestead Exemption

The homestead exemption protects the equity in your principal residence.

Under the new legislation, homeowners will be able to protect substantially more equity than before.

Given the dramatic increase in Michigan home values over the last several years, this change comes at exactly the right time.

Many homeowners who previously may have been concerned about filing Chapter 7 because of home equity may now be able to file safely while keeping their home.

Increased Vehicle Exemption

Cars have become dramatically more expensive.

A vehicle worth $15,000 today is often simply reliable transportation—not a luxury.

The increased motor vehicle exemption recognizes today’s market and should allow more debtors to keep dependable transportation while obtaining a fresh start.

Better Protection for Personal Property

The legislation also increases many of the exemptions covering everyday household property, including items such as:

• Household furnishings
• Clothing
• Appliances
• Jewelry
• Tools used in a trade
• Other personal belongings

These exemption amounts had remained largely unchanged for years while inflation steadily reduced their value.

Greater Protection for Cash and Other Assets

Several exemption categories will receive increased dollar limits, allowing debtors to protect more of their savings and personal assets.

This is especially important for individuals who have recently sold property, received insurance proceeds, or accumulated modest savings before filing bankruptcy.

How This Will Affect Chapter 7 Cases

I expect these new exemptions will result in more people qualifying to file Chapter 7 without risking valuable property.

For many years I have met with prospective clients who delayed filing because they were worried about:

• Home equity
• Vehicle equity
• Savings accounts
• Valuable personal property

The new exemption amounts should eliminate many of those concerns.

Chapter 7 trustees administer only non-exempt assets.

The more property that is exempt, the less property is available for liquidation.

That means more Chapter 7 cases will likely become “no-asset” cases, allowing debtors to receive a discharge while keeping more of what they own.

How This Will Affect Chapter 13 Cases

The legislation should also have a significant impact on Chapter 13 bankruptcy.

In Chapter 13, unsecured creditors generally must receive at least as much as they would have received if the debtor had filed Chapter 7.

If more assets become exempt, unsecured creditors may be entitled to receive less under a Chapter 13 plan.

That can result in:

• Lower monthly Chapter 13 payments.
• Greater flexibility in proposing repayment plans.
• Increased likelihood that a Chapter 13 plan will be affordable.
• More successful Chapter 13 reorganizations.

Simply put, larger exemptions frequently translate into lower Chapter 13 plan obligations.

Timing May Matter

If you are considering filing bankruptcy, timing has always been important.

With these anticipated changes, timing may become even more critical.

Depending upon when the legislation becomes effective, some individuals may benefit substantially by waiting until the new exemptions take effect before filing.

Others, however, may need immediate protection from:

• Wage garnishments
• Lawsuits
• Foreclosures
• Vehicle repossessions
• Bank levies

Every situation is different.

The best filing date depends upon your specific financial circumstances, not simply the effective date of new legislation.

Should You Wait to File?

That is a question that deserves an individualized answer.

Sometimes waiting makes perfect sense.

Sometimes waiting could cost far more than the additional exemptions would provide.

This is why experienced bankruptcy planning is so important.

As a Board Certified Consumer Bankruptcy Specialist, I routinely help clients determine not only whether they should file bankruptcy, but when filing will produce the best possible result.

The Bottom Line

Michigan’s updated exemption law represents one of the most consumer-friendly changes to Michigan bankruptcy law in many years.

For homeowners, vehicle owners, retirees, and working families alike, these increased exemption amounts should allow more people to obtain a fresh financial start while keeping the property they have worked hard to acquire.

If Governor Whitmer signs House Bill 4901 as expected, I anticipate these new exemptions will become an important part of bankruptcy planning throughout Michigan.

If you are thinking about filing Chapter 7 or Chapter 13 bankruptcy, now is an excellent time to schedule a consultation. In many cases, a careful review of your assets and the timing of your case could make a significant difference in the property you are able to keep.

As always, bankruptcy should never be filed based solely on what you read online. Every case is different, and proper planning before filing can often save thousands—or even tens of thousands—of dollars in protected assets.