Filing for Bankruptcy in Michigan - Firebaugh & Andrews

When filing for bankruptcy in Michigan, you’ll need to understand federal law and Michigan’s exemption laws. This article provides instructions for filing for bankruptcy in Michigan.

Because we couldn’t include everything in one article, you’ll want to check out its companion, What You Need to Know to File for Bankruptcy. You’ll find lots more details there.

How Does Bankruptcy Work in Michigan?

In most respects, filing for bankruptcy in Michigan isn’t different from filing in another state. The bankruptcy process falls under federal law, not Michigan state law, and works by unwinding the contracts between you and your creditors. That’s what gives you a fresh start.

But Michigan’s laws come into play in a significant way because they determine the property you can keep in your bankruptcy case. You’ll also need to know other filing information, which we explain after reviewing some basics.

How Do I Choose the Right Bankruptcy Chapter in Michigan?

Most people file either Chapter 7 or Chapter 13, and you’re not alone if you don’t know how the two differ. The short explanation below and our handy Chapter 7 versus 13 chart will help clarify things.

Filing for Chapter 7 in Michigan

Chapter 7 is often a bankruptcy filer’s first choice for several reasons. It’s quick, taking only a few months to complete. And it’s cheap. You don’t pay anything to creditors.

Chapter 7 bankruptcy works well for people who own mainly the essential items needed to live and work and not much else. People with more assets could lose them in Chapter 7 because the Chapter 7 trustee, the official responsible for the case, sells unnecessary luxury items and distributes the proceeds to creditors. For instance, you might have to give up your RV, baseball card collection, or timeshare in the Bahamas, even your house or vehicle if you have more equity than you’re allowed to keep.

Also, unlike Chapter 13, Chapter 7 has no payment plan option for catching up on late mortgage or car payments. So you could lose your home or car if you’re behind on the loan when you file.

Filing for Chapter 13 in Michigan

Chapter 13 involves repaying creditors some or all of what’s owed using a three- to five-year repayment plan. Chapter 13 filers keep everything they own, and the payment plan provides ways to improve sticky financial situations.

For instance, you can catch up on late payments and save your home from foreclosure or your car from repossession. Also, if you need time to repay a debt you can’t eliminate or “discharge” in bankruptcy, you can use Chapter 13 to force a creditor into a payment plan and repay your balance over time. Learn more about when filing for Chapter 13 is better than Chapter 7.

The biggest downside to this chapter? It can be expensive. Many people can’t afford the monthly payment. Also, businesses can’t file a Chapter 13 case. If you’re a business owner, it’s a good idea to learn about the ins and outs of small business bankruptcies before choosing the bankruptcy right for you.

Not Sure What to Expect in Bankruptcy?

Will Filing for Bankruptcy in Michigan Erase My Debts?

Bankruptcy wipes out many bills, like credit card balances, overdue utility payments, medical bills, personal loans, and more. You can even get rid of a mortgage or car payment if you’re willing to give up the house or car that secures the debt. (Putting property up as collateral creates a “secured debt.” If you don’t pay what you owe, the lender recovers the property.)

But you can’t discharge all debts. You’ll want to be sure that bankruptcy will discharge (get rid of) enough bills to make it worthwhile.

For instance, nondischargeable debts, like domestic support arrearages and recent tax debt, won’t go away in bankruptcy. Also, student loans aren’t easy to wipe out because you’d have to win a separate lawsuit (however, in 2024, steps have been taken to ease the student loan discharge process with a new student loan bankruptcy form).

How Do I Qualify for Chapter 7 or Chapter 13 Bankruptcy in Michigan?

You won’t be surprised to learn that qualifying for bankruptcy involves meeting several requirements. Because you’re only entitled to a discharge every few years, if you’ve filed before, you’ll want to check whether enough time has passed to allow you to file again. The waiting period varies depending on the chapter previously filed and the chapter you plan to file. Learn more about multiple bankruptcy filings.

You’ll also need to meet specific chapter requirements. Here are the qualification basics for Chapters 7 and 13.

Chapter 7 Bankruptcy Qualifications

You’ll qualify for Chapter 7 bankruptcy if your family’s gross income is lower than the median income for the same size family in your state. Add all gross income earned during the last six months and multiply it by two. Compare the figure to the income charts on the U.S. Trustee’s website (select “Means Testing Information”).

Want an easy way to do this online? Use the Quick Median Income Test. If you make too much, you still might qualify after taking the second part of the “means test.” If, after subtracting expenses, you don’t have enough remaining to pay into a Chapter 13 plan, you’ll qualify for Chapter 7.

Chapter 13 Bankruptcy Qualifications

Qualifying for Chapter 13 can be expensive because the extra benefits come at a hefty price, and many people can’t afford the monthly payment. To qualify, you’ll pay the larger of:

• your priority nondischargeable debt
• the value of nonexempt property, or
• your disposable income.

How Do I Keep Property in Michigan Using Bankruptcy Exemptions?

You won’t lose everything in bankruptcy. You’ll use bankruptcy exemption laws to protect your property. We list the significant exemptions below, but first, understanding the following will help you maximize what you’ll keep in your case.

• Exempt and nonexempt property. You can keep property protected by an exemption or “exempt” property. When a bankruptcy exemption doesn’t cover the property, you’ll either lose it in Chapter 7 or have to pay for it in the Chapter 13 repayment plan.
• Choosing state or federal exemptions. You can choose whether you use the state exemption list or the list of federal bankruptcy exemptions, but you can’t mix and match exemptions from both sets. Filers who use state exemptions can also use the federal nonbankruptcy exemptions.
• Doubling exemptions. In many instances, spouses filing together can double the exemption amount if both own the property.
• Retirement accounts all filers can protect. Federal law allows all filers to keep tax-exempt retirement accounts, including 401(K)s, 403(b)s, profit-sharing and money purchase plans, SEP and SIMPLE IRAs, defined benefit plans, and traditional and Roth IRAs to $1,512,350 per person (for cases filed between April 1, 2022, and March 31, 2025). (11 U.S.C. 522(b)(3)(C); (n).) Learn more about retirement accounts in bankruptcy.

What Are the Bankruptcy Exemptions in Michigan?

Filers can protect some home and vehicle equity, personal possessions, retirement accounts, and more. Below is a list of commonly used Michigan bankruptcy exemptions.

Caution: The state exemptions have not been updated and should not be relied on, but used as a general guide only. Some state exemption amounts could be higher and your state could have changed the law by adding new or deleting old exemptions. You must verify exemption availability through independent research or by consulting with a local bankruptcy attorney.

Michigan Homestead Exemption

You’ll be able to protect up to $46,125 in equity in your residence. If you are over 65 or disabled, the limit increases to $69,200. Spouses filing together cannot double these amounts. (Mich. Comp. Laws §§ 600.5451(1)(m).)

Learn more about the homestead exemption in bankruptcy.

How Do I Use the Michigan Homestead Exemption?

Michigan lets filers use either the federal exemption system or Michigan’s state exemption system, so you’ll have two homestead amounts to choose between. A unique aspect of the Michigan homestead exemption is a surviving spouse of the owner can claim the homestead exemption.

The homestead exemption applies to your principal residence only. It could include your house, condominium, co-op unit, mobile home, motor home, boat or other watercraft, or manufactured home. The homestead exemption also applies to appurtenances to the property. If the property is outside a city, village, or recorded plat, the homestead can include up to 40 acres. If the property is inside a city, village, or recorded plat, the exemption applies to one lot or parcel.

If you hold property as tenancy by entirety with your spouse: If one spouse files for bankruptcy—not both—the bankruptcy trustee might be prevented from using the property equity to pay off debts. (Mich. Comp. Laws §§ 600.5451(1)(n),(o).) However, this is a tricky area of law. Because your home is likely your most valuable asset, consider consulting with a bankruptcy lawyer to ensure you can protect it in bankruptcy.

Michigan Motor Vehicle Exemption

Filers can protect up to $4,250 of equity in a motor vehicle. (Mich. Comp. Laws § 600.5451(1)(g).) Find out how the motor vehicle exemption works in a Chapter 7 case.

Michigan Pension and Retirement Account Exemptions

Most pension and retirement accounts are completely protected. Most individual retirement accounts and annuities, as well as ERISA-qualified pension, profit-sharing, and stock bonus plans, are fully protected except for amounts contributed within the 120 days before filing for bankruptcy. (Mich. Comp. Laws §§ 600.5451(1)(j)(k).)

Here are some specific protections:

• Firefighter and police officer benefits. (Mich. Comp. Laws §§ 38.559, 38.1683.)
• Legislative member retirement benefits. (Mich. Comp. Laws §§ 38.1057, 38.1683.)
• Public school employee retirement benefits. (Mich. Comp. Laws §§ 38.1346, 38.1683.)
• State police retirement benefits. (Mich. Comp. Laws §§ 38.1346, 38.1683.)
• State employees’ retirement benefits. (Mich. Comp. Laws § 38.1683.)
• Judges’ retirement benefits. (Mich. Comp. Laws §§ 38.2308, 38.1683.)

Michigan Personal Property Exemptions

• Burial grounds. (Mich. Comp. Laws § 128.112.)
• Milk or cream sales proceeds. (Mich. Comp. Laws § 600.4031.)
• Wages up to 60% of earned but unpaid wages for the head of household or $15 per week plus $2 per week for each dependent other than the spouse; others can protect up to 40% or $10 per week. (Mich. Comp. Laws § 600.5311.)
• Family pictures. (Mich. Comp. Laws § 600.5451(1)(a)(i).)
• Arms and accouterments required to be kept by law. (Mich. Comp. Laws § 600.5451(1)(a)(ii).)
• Clothing other than furs. (Mich. Comp. Laws § 600.5451(1)(a)(iii).)
• Family cemetery lot, tombs, and burial rights. (Mich. Comp. Laws § 600.5451(1)(a)(iv).)
• Professionally prescribed health aids. (Mich. Comp. Laws § 600.5451(1)(a)(v).)
• Six-month supply of provisions and fuel. (Mich. Comp. Laws § 600.5451(1)(b).)
• Household goods such as furniture, utensils, books, appliances, and jewelry valued at up to $4,625. ($700 per item limit) (Mich. Comp. Laws § 600.5451(1)(c).)
• Seat, pew, or slip to $800. (Mich. Comp. Laws § 600.5451(1)(d).)
• Farm animals, feed, and crops to $3,075. (Mich. Comp. Laws § 600.5451(1)(e).)
• Household pets to $800. (Mich. Comp. Laws § 600.5451(1)(f).)
• Computer and accessories to $800. (Mich. Comp. Laws § 600.5451(1)(h).)
• Tools, implements, materials, and other items necessary to carry on your profession, trade, occupation, or business to $3,075. (Mich. Comp. Laws § 600.5451(1)(i)).

Michigan Public Benefit Exemptions

• Crime victims’ compensation. (Mich. Comp. Laws § 18.362.)
• Veterans’ benefits. (Mich. Comp. Laws §§ 35.977, 35.1027.)
• Welfare benefits. (Mich. Comp. Laws § 400.63.)
• Worker’s compensation benefits. (Mich. Comp. Laws § 418.821.)
• Unemployment compensation. (Mich. Comp. Laws § 421.30.)

Michigan Insurance Exemptions

• Fraternal benefit society benefits. (Mich. Comp. Laws § 500.8181.)
• Insurance benefits fully protected regardless of the amount. (Mich. Comp. Laws § 500.2207.)
• Insurance benefits paid on behalf of an employer. (Mich. Comp. Laws § 500.2210.)
• Insurance benefits paid by any stock, mutual life, health, or casualty insurance. (Mich. Comp. Laws § 600.5451(1)(j).)

State exemption amounts are adjusted periodically and are not being updated in this article. You’ll find the Michigan exemption statutes on the Michigan Legislature website. Check for updates with the Michigan Department of Treasury in the Economic Reports section.

When Can I Use Michigan Bankruptcy Exemptions?

You can file for bankruptcy in Michigan after living there for over 180 days. However, you must live in Michigan for at least 730 days before filing. Otherwise, you’d use the previous state’s exemptions.

If you lived in multiple states during the two years before filing for bankruptcy, you’d use the exemptions of the state you lived in for most of the 180 days before the two years immediately preceding your filing. (11 U.S.C. § 522(b)(3)(A).)

How Do I Prevent Bankruptcy Exemption Problems in Michigan?

Exempt your property carefully. The bankruptcy trustee, the court-appointed official assigned to manage your case, will review the exemptions. A trustee who disagrees with your exemptions will likely try to resolve the issue informally. If unsuccessful, the trustee will file an objection with the bankruptcy court, and the judge will decide whether you can keep the property.

Example. Mason owns a rare, classic car worth $15,000, but the state vehicle exemption doesn’t cover it entirely. Believing that the car qualifies as art, at least in his mind, Mason exempts it using his state’s unlimited artwork exemption. The trustee disagrees with Mason’s characterization and files an objection with the court. The judge will likely decide the vehicle doesn’t qualify as art.

Purposefully making inaccurate statements could be considered fraudulent. Bankruptcy fraud is punishable by up to $250,000, 20 years in prison, or both.

Should I Hire a Bankruptcy Lawyer in Michigan?

Most people find it worthwhile to get counsel. A bankruptcy attorney will help you:

• qualify for the chapter of your choice
• determine when it’s time to file
• help you keep the property you want
• make sure you don’t run afoul of fraud or other issues, and
• explain when you can stop paying the bills you’ll erase in your case.

You can expect creditors to call until you file. It’s usually best to ignore them because telling creditors about your bankruptcy can encourage them to take more drastic collection steps before losing the right to collect altogether. However, if you hire counsel and refer creditors to your lawyer, they’ll have to stop calling you.

How Do I File for Bankruptcy in Michigan Without a Lawyer?

You’ll complete the steps listed below in “What Steps Are Involved in a Michigan Bankruptcy?” But not everyone should file their own bankruptcy case.

The best candidate is a Chapter 7 debtor who meets qualification requirements, can eliminate all debts, and can protect all property with bankruptcy exemptions. People filing for Chapter 13 or Chapter 7 filers with complicated cases should seek representation.

Are you curious whether your case is simple enough to file yourself? Our quiz will help you identify potential complications while educating you about bankruptcy. You’ll find it here: Do I Need a Lawyer to File for Bankruptcy?

How Much Does It Cost to File for Bankruptcy in Michigan?

All filers pay a $338 filing fee in Chapter 7 unless the court grants a fee waiver and a $313 filing fee in Chapter 13 (amounts current as of August 2023). You’ll also pay approximately $50 to $75 for credit counseling and debt management courses.

If you hire a bankruptcy lawyer to represent you, you can expect to pay from $1,500 to $2,500 upfront for most Chapter 7 cases, although the price will depend on the going rates in your area and case complexity. Chapter 13 legal fees run about $1,000 to $1,500 more, but you can pay them in installments through the Chapter 13 payment plan.

Learn about your options if you can’t afford to hire a bankruptcy attorney. Call Firebaugh & Andrews for your free consultation. 734-722-2999

What Steps Are Involved in a Michigan Bankruptcy?

We all know that seeing the forest helps us recognize the trees. Similarly, understanding the significant steps you’ll take during your bankruptcy journey. will help you understand the bankruptcy process. Think of this checklist as a roadmap, but you can also use it to track your progress.

Bankruptcy Steps Checklist

 learn about Chapters 7 and 13

 check whether bankruptcy will erase debt

 find out if you can keep property

 determine whether you qualify

 consider hiring a bankruptcy lawyer

 stop paying qualifying debts

 gather necessary financial documents

 take a credit counseling course

 fill out and file paperwork

 turn over financial documents

 attend the 341 creditor’s meeting

 attend the confirmation hearing and make plan payments (Chapter 13 only)

 file a debtor’s education course certificate

 receive your debt discharge

What Do I Need to File for Bankruptcy in Michigan?

Once you decide to file, the fun begins! Well, not really. You’ll start by gathering your financial information, which can take time. But our bankruptcy document checklist should help you organize what you or your attorney will need.

Bankruptcy Document Checklist

Tax returns, unless you’re exempt:

 Two years for Chapter 7 bankruptcy (You’ll need both years to complete the paperwork and the most recent year for the bankruptcy trustee.)

 Four years for Chapter 13 bankruptcy

 Tax transcripts (Order transcripts from https://www.irs.gov/individuals/get-transcript if you don’t have copies of your returns)

Six months of the following:

 Proof of Income From Employer (paycheck stubs)

 Other Proof of Income (unemployment benefits stubs, proof of alimony or maintenance payments, income from any other source)

 Bank Statements (The bankruptcy trustee will want the most recent two months.)

 Investment and Retirement Statements (The bankruptcy trustee will want the most recent two months.)

Copies of the following (take original to court):

 Driver’s License, I.D. Card, Government I.D., or Passport (The name on the petition should match your identification exactly.)

 Social Security Card or proof of Social Security number

Things the trustee might ask for (current):

 Mortgage and Car Loan Statements (The trustee will check the balance owed.)

 Home Valuation (Realtor.com; Zillow)

 Car Valuation (Nada.com; Kelley Blue Book)

 Valuation of Antiques and Unusual Items (eBay)

 Photographs of Rare, Antique, and Collectable Items

 Photographs of Damaged Property

 Repair Estimates for Damaged Property

If you own a business, the trustee will likely want:

 Twelve monthly profit and loss statements

 Two yearly profit and loss statements

 Copies of any liability insurance policies

Things you’ll need to prepare your bankruptcy petition:

 Household Property List With Values (Group small items together, such as clothing, cookware, and bedding.)

 Credit Card and Other Billing Statements

 Credit Report (Get a free copy at annualcreditreport.com)

 Credit Counseling Completion Certificate

More things you might need at the creditors’ meeting:

 Bank statements showing the balance on the filing date (You’ll need to have exempted the entire balance.)

 Other Documents Reasonably Related to Your Financial Affairs

After the creditors’ meeting:

 Debtor’s Education Course Completion Certificate

Where Do I Find the Michigan Bankruptcy Court Websites and Locations?

Michigan has two bankruptcy districts—Eastern and Western. Each has multiple locations serving various geographical areas. Clicking on the district name will take you to the court homepage.

• Eastern District of Michigan
• Western District of Michigan

On the Michigan bankruptcy court website, you can access the district’s local rules and instructions for filing your paperwork on the navbar under “Filing Without an Attorney” or “For Debtors.”

What Happens After Filing for Bankruptcy in Michigan?

Your creditors will stop bothering you soon after you file. It takes a few days because the court mails your creditors notice of the “automatic stay” order that prevents most creditors from continuing to ask you to pay them. Here’s what will happen next:

• You’ll turn over financial documents proving the statements in your bankruptcy paperwork.
• You’ll attend the 341 meeting of creditors—the one appearance all filers must attend.
• You’ll complete a debtor education course and file the completion certificate.

These things must happen before you get a Chapter 7 bankruptcy discharge. Chapter 13 filers will also attend a repayment plan confirmation hearing and complete the three- to five-year payment plan.

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