If a consumer in Livonia, Michigan, can no longer pay their debts, they can file bankruptcy. Many consumers choose Chapter 7, but it requires them to sell the nonexempt property. However, they may be able to save some nonexempt property through exemptions.
Nonexempt property and exemptions in Chapter 7 bankruptcy
Nonexempt property is what the court considers not needed for daily living, such as second homes, valuable artwork, and watercraft. Chapter 7 bankruptcy erases unsecured debts, which means they didn’t require the borrower to put up collateral. Some examples of unsecured debt include credit cards and medical bills, but certain ones cannot be erased, such as current taxes.
In some states, filers can choose between state and federal exemptions and not both, but state exemptions are commonly more generous. Michigan allows consumers to choose between state and federal exemptions based on what they can exempt.
Michigan gives filers a generous $40,475 for individual homeowners and $60,725 for disabled people or filers aged 65 and older. Filers are also allowed to exempt furniture and household goods up to a $600 value and $3,825 overall. All clothing except furs is exempt under Michigan’s bankruptcy code, even expensive clothing and wristwatches, dependent on the court rules.
A consumer who is the main wage earner can be exempt up to 60% of unpaid earnings. Michigan does not have a wild card exemption, but the federal wild card exemption is $1,250 plus $11,850 for unused homestead exemption. Filers can exempt one vehicle up to $3,525 unless the filer still makes payments and the value is less than the balance.
If filers don’t qualify for Chapter 7, they may try Chapter 13. This type of bankruptcy doesn’t require selling assets, but it can still impact credit for several years. The consumer should discuss their options with a financial advisor before filing.