BANKRUPTCY: Good News For Michigan Bankruptcy Filers!

BREAKING GOOD NEWS from the national general law practice firm of Charles Jerome Ware, P.A.: "Still working. Still committed. Still here to make a difference."

The Sixth Circuit U.S. Court of Appeals has now ruled that Michigan debtors can use the Michigan-specific "bankruptcy-only" exemptions! This means, among other things, that Michigan bankruptcy-filers can now choose from 3 sets of bankruptcy exemptions. The most choices in the nation.

Thus, Michigan bankruptcy-filers have more bankruptcy exemptions to protect more of their property during bankruptcy.

On August 20, 2012, the United States Court of Appeals for the Sixth Circuit ruled that people filing for bankruptcy in Michigan may use Michigan’s set of bankruptcy-only exemptions. The decision (in In re Schafer, 2012 WL 3553294 (6^th Cir. August 20, 2012)) is good news for those filing for bankruptcy in Michigan!

The issue initially was ruled upon by the courts in 2011, when the Sixth Circuit Bankruptcy Appellate Panel held that Michigan’s bankruptcy-specific exemptions (found in Mich. Comp. Laws §600.5451) were unconstitutional.

An explanation may be helpful to you:

What Are Bankruptcy Exemptions?

In Chapter 7 bankruptcy, exemptions allow you to keep certain types of property, often up to certain amounts of equity. For example, if the law provides you with a motor vehicle exemption up to $5,000, it means you can protect up to $5,000 in equity in your car. If your car is worth $3,000, the bankruptcy trustee cannot take it since all of the equity is covered by an exemption.

Exemptions play a role in Chapter 13 bankruptcy as well.

"Bankruptcy-Only" Exemptions

Federal bankruptcy law provides a set of exemptions. Each state has a set of exemptions as well. Usually, those exemptions can be used in bankruptcy and to protect property from judgment creditors. But some states, like Michigan, have a set of state exemptions that apply only in bankruptcy. They cannot be used to protect property from judgment creditors. These are referred to as "bankruptcy-only exemptions."

The Constitutionality of "Bankruptcy-Only Exemptions"

In 2011, the Bankruptcy Appellate Panel in the 6^th Circuit (which covers Kentucky, Michigan, Ohio, and Tennessee) held that Michigan’s bankruptcy-only exemptions were unconstitutional. But four days ago, the 6^th Circuit Court of Appeal reversed that decision – ruling that bankruptcy-only exemptions are constitutional. This means that once again, bankruptcy filers in Michigan can choose from three sets of exemptions: the federal exemptions, Michigan’s regular exemptions (those that also apply to judgment creditors), and Michigan’s bankruptcy-only exemptions.

What Does This Mean for Michigan Bankruptcy Filers?

For bankruptcy filers, this is good news! It’s always better to have more options, and for many filers, the bankruptcy-only exemptions will protect more property. For example, the homestead exemption in Michigan’s bankruptcy-only exemptions is significantly higher than the homestead exemption in Michigan’s general exemption scheme.

So for filers that have a home, the bankruptcy-only exemptions may help those filers keep their home.

The "Michigan Bankruptcy-Only Exemptions, as far as we know, are: (1) Homestead, (2) Personal Property, (3) Wages, (4) Pensions, (5) Public Benefits, (6) Tools of Trade, (7) Insurance, (8) Miscellaneous, and (9) Other.

[In re Schafer, 2012 WL 3553294, 6th Circuit U.S. Court of Appeals, August 20th, 2012; http://blog.nolo.com/bankruptcy/2012/08/23/6th-circuit-says-michigan-debtors-can-use-bankruptcy-only-exemptions; www.thebankruptcysite.org/exemptions/michigan/08/23/2012; law.justia.com/cases/federal/appelate-courts/stateofmichiganv.schafer/8-23-2012]