What Do I Get To Keep

What Can I Keep If I File Bankruptcy?

The bankruptcy code allows each person who files bankruptcy to keep basic assets considered necessary for the debtor's "fresh start" after bankruptcy. That property is the debtor's "exempt property." The bankruptcy trustee, whose job it is to sell any substantial non-exempt property and distribute the proceeds to creditors, will not take it.  The Michigan bankruptcy attorneys at Sterling Bankruptcy Center will be able to review your assets and advise you what assets you will be able to keep, which is usually all.

You'll claim property as exempt in the schedules (lists of assets and liabilities) that are filed to initiate the case. If no objections are filed to the exemptions, in your Michigan chapter 7 bankruptcy case they become final 30 days after the meeting of creditors.

How Much Can I Exempt?

Exemptions are the one place where bankruptcy law varies from state to state. Congress created a set of exemptions in the bankruptcy code, but allowed each state to opt-out of those exemptions in favor of state exemptions. Michigan allows debtors to elect the bankruptcy code exemptions.  In a Michigan bankruptcy, the debtor has a choice between the federal exemptions and those provided in Michigan state law.  Most debtors in a Michigan chapter 7 bankruptcy case will use the federal exemptions, which are much more generous than Michigan state law bankruptcy exemptions. 

Can I Keep My House?

If there is no equity in the house (today's value less costs of sale less payoff balances on all liens and mortgages), the trustee in a Michigan Chapter 7 bankruptcy will abandon the house to you. That is, you keep it, as long as you pay the mortgage(s).

A bankruptcy doesn't wipe out voluntary liens, like mortgages and deeds of trust, or tax liens. So the lender still has the right to foreclose if you don't pay. If you pay, everyone is happy. Remember, the lender doesn't want the property; it wants you to pay regularly on the loan. Foreclosure is a last resort for the lender if it concludes it can't get the owed money any other way.  If there's equity, your bankruptcy attorney at Sterling Bankruptcy Center will figure out whether any "homestead exemption" available to you is equal or greater than the equity in your home.  If the equity is all exempt, you can keep your home in a Michigan chapter 7 bankruptcy, as long as you pay the mortgage(s).  If there is more equity than the allowed exemption, it is possible you could lose the home.  In that case, you may wish to consider filing for Michigan chapter 13 bankrptcy.  One of the experienced bankruptcy attorneys at Sterling Bankruptcy Center will be able to advise you whether you can qualify for a Michigan Chapter 13 bankruptcy.

Can I Keep My Car?

What you must do to keep the car varies depending on whether there is non-exempt equity in the car. If there is no equity in the car, after subtracting any car loan and exemption from the car's present value, the bankruptcy trustee will not take the car.   If there's equity in the car over and above the amount of the exemption available, you can usually buy any unprotected equity from the Michigan Chapter 7 bankruptcy trustee.   If you still owe money on the car, you can choose to reaffirm the debt to the secured lender, keep the car and continue paying under the terms of the loan.  You can also redeem the car by buying it from the secured creditor in a single payment for it's present fair market value.  If you choose, you can surrender the car and be free of any obligation to pay for it.

When Everything Is Exempt

Most Michigan Chapter 7 bankruptcy cases are considered "no-asset cases." The debtors give up nothing to the trustee for the following reasons:

  • The exemption systems permit debtors to keep the means of day-to-day living, free from the claims of their creditors. The point of bankruptcy is to get a fresh start and that is only possible if the debtor has something to start with.
  • Used household goods and personal effects have little resale value, and so do not represent a real source of value to repay creditors
  • Pension rights and 401(k) plans, frequently the largest or second largest asset of most families, are not property of the bankruptcy estate. Since retirement plans are outside the estate, the debtor doesn't have to exempt them to keep them.
  • IRAs and other retirement savings may be property of the estate, but are frequently exempt

 How Do I Calculate What's Exempt?

The values in the exemption statutes refer to the present sale value of the item (not the purchase price or replacement value).

If an asset is subject to a mortgage or a lien, it's the value of the item after deducting the amount of the lien or liens (the equity) that is used to figure the exemption. Some liens can be avoided to create exempt equity.  The law looks only to the value of the debtor's share of the equity in an item if it is co-owned.

Significant Non-Exempt Assets

If you have significant non-exempt assets, talk to one of the experienced bankruptcy attorneys at Sterling Bankruptcy Center about converting non-exempt value into exempt value. Courts differ on what constitutes good bankruptcy planning versus what is a scheme to "hinder, delay or defraud creditors," something which can jeopardize your discharge. Chapter 13 bankruptcy may also be an option.

The bottom line is that bankruptcy exemptions are a big deal and affect what you get to keep and what you stand to lose by filing bankruptcy. Working with one of the seasoned bankruptcy attorneys at Sterling Bankruptcy Center  is critical here.

 

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