Tag Archives: exemptions

Michigan Bankruptcy Exemptions to Increase on April 1, 2014

iStock_000013926497Small (2)If you are planning to file for bankruptcy in Michigan, you might want to wait a few weeks. On April 1, 2014, the dollar amounts for some of the bankruptcy exemptions will increase. This means if you wait to file for bankruptcy until on or after April 1st, you can keep more property in Chapter 7 bankruptcy.

What Are Bankruptcy Exemptions?

If you file for Chapter 7 bankruptcy, your property becomes part of the bankruptcy estate. The bankruptcy trustee can sell your property and use the proceeds to repay your unsecured creditors. Some property, however, is safe from the trustee – this is called exempt property. (Learn more about the role of exemptions in Chapter 7 bankruptcy.) Each state has a list of property you can exempt in that state, usually up to certain dollar amounts.

In Chapter 13 bankruptcy, your exempt property plays a role in how much you must repay unsecured creditors over the life of your plan. So even though you keep your property in Chapter 13, being able to exempt most or all of your property is still advantageous to your case. (Learn more about the role of exemptions in Chapter 13 bankruptcy.)

Michigan Bankruptcy Exemptions

Like other states, Michigan law sets forth a list of property that you can protect if creditors are trying to collect from you. You can use these exemptions in bankruptcy as well. For a full list of Michigan bankruptcy exemptions (not all of them changed), see Nolo’s article Michigan Bankruptcy Exemptions.

Every three years the Michigan state treasurer adjusts the exemption dollar amounts to take into account inflation. The latest adjustment will go into effect on April 1, 2014. If you file for bankruptcy on or after April 1, 2014, the following exemption amounts will apply to your case:

  • Household goods, furniture, utensils, books, appliance, and jewelry, up to $600 per item, but not to exceed a total of $3,775 for all items. (The previous amounts were $550 and $3,525 respectively.)
  • Pew in a place of worship, up to $650 (previously it was $600).
  • Crops, farm animals, and feed for the animals, up to $2,525 total (previously it was $2,350).
  • Pets, up to $650 (previously it was $600).
  • Motor vehicle, up to $3,475 (previously it was $3,250). (Learn more about the Michigan motor vehicle exemption.)
  • Computer and accessories, up to $650 (previously it was $600).
  • Tools of the trade, up to $2, 525 (previously it was $2,350).
  • Homestead exemption to $37,775 (previously it was $35,300) or to $56,650 if you are 65 years old or disabled (previously it was $52, 925). (Learn more about the Michigan homestead exemption.)

You can find these exemption laws in the Michigan Compiled Laws Annotated §600.5451(1). However, the statutes do not reflect the adjusted amounts. You can find the Michigan bankruptcy exemptions adjusted for inflation on the Michigan Department of Treasury’s website.

Oregon Bankruptcy Filers Can Now Use the Federal Exemptions

Effective July 1, 2013, those filing for bankruptcy\ in Oregon will be able to use the federal bankruptcy exemptions instead of the Oregon exemptions.  In addition, Oregon added an exemption for medical savings accounts and health savings accounts.

(To learn how bankruptcy exemptions help you keep property in Chapter 7 bankruptcy, visit Nolo’s Bankruptcy Exemptions topic area.)

Using the Federal Bankruptcy Exemptions

All states have their own set of exemptions that debtors can use in bankruptcy. Some states allow bankruptcy filers to elect to use the federal bankruptcy exemptions instead of the state exemptions. In those states, filers may choose to use one set or the other, but cannot mix and match.

Prior to July 1, 2013, Oregon bankruptcy filers were not allowed to use the federal bankruptcy exemptions. But thanks to recent legislation (SB 396) that was signed into law on July 1, 2013, bankruptcy filers in Oregon may now elect to use the federal bankruptcy exemptions.

(To find a list of the most common exemptions in Oregon, see Nolos’ article Oregon Bankruptcy Exemptions.)

The Option to Use the Federal Exemptions Provides Flexibility to Oregon Filers

This development is a bonus for Oregon bankruptcy filers. Being able to choose between two sets of exemptions gives filers more flexibility. For some types of property, the Oregon exemptions are more generous. For others, the federal exemptions provide more protection.

For example, although the Oregon homestead exemption is greater than the federal homestead exemption, the federal wildcard exemption is significantly more than the Oregon wildcard exemption. For a filer that does not own a home, using the federal exemptions might allow him or her to protect more of his personal property than if limited to the Oregon exemptions.

New MSA and HSA Exemption

The new law also adds an exemption for all funds in health savings accounts and medical savings accounts.

(For more articles on filing for bankruptcy in Oregon, visit Nolo’s Oregon Bankruptcy Information topic area.)

Bankruptcy-Specific Exemptions Will Stand in Michigan

SLWYYesterday the U.S. Supreme Court denied certiorari in Richardson v. Schafer, 2013 WL 598486 (U.S. Feb. 19, 2013).  This case, which came out of the 6th Circuit Court of Appeals, revolved around this question:  Are state exemptions that may only be used in bankruptcy constitutional? Because the Supreme Court will not review the case (called denying cert), the 6th Circuit Court of Appeal’s decision will stand — which means people can use the bankruptcy-only exemptions in Michigan.

What Are Bankruptcy-Only Exemptions?

In bankruptcy, exemptions help you protect certain property in Chapter 7, and play a role in how much you must repay creditors in Chapter 13. (Learn about bankruptcy exemptions and how they work.) There are a set of federal bankruptcy exemptions, and each state has its own set of exemptions. Many states have a set of exemptions that you can use both in bankruptcy and also to protect your property from collection efforts by judgment creditors.  Some states have a set of exemptions that can be use in bankruptcy only — you cannot use them against judgment creditors. This last type of exemptions (often called bankruptcy-only exemptions) were at the heart of the Schafer case.

In Re Schafer

The bankruptcy trustee in this case challenged the debtor’s use of one of the bankruptcy-only exemptions, arguing that these types of exemptions were unconstitutional. The 6th Circuit Court of Appeal ruled that bankruptcy-only exemptions were constitutional — a win for bankruptcy debtors. Now that the U.S. Supreme Court has refused to hear the case, the 6th Circuit’s decision stands. This means that bankruptcy filers in Michigan (the only state within the 6th Circuit that has bankruptcy-only exemptions) will be able to use the state’s bankruptcy-only exemptions.

To learn more about the Schafer case and what is means for bankruptcy filers, see my previous post: 6th Circuit Says Michigan Debtors Can Use Bankruptcy-Only Exemptions.

California Bankruptcy Exemption Amounts Increase

Changes to California bankruptcy exemption laws, effective January 1, 2013, have increased some of the exemption amounts available to people filing for bankruptcy in California.

What Are Bankruptcy Exemptions?

Most people who file for Chapter 7 bankruptcy in California are able to discharge most or all of their debts. In return, they must turn over certain property to the bankruptcy trustee, which the trustee will use to repay creditors. However, California law allows you to protect certain types of property in bankruptcy — meaning you don’t have to give the property to the bankruptcy trustee. These laws are called exemptions. Exemptions play a role in Chapter 13 bankruptcy as well.

To learn more about how exemptions work in bankruptcy and the exemption amounts in each of the 50 states, visit Nolo’s  Bankruptcy Exemptions topic area.

2013 Changes to California Bankruptcy Exemptions

California Assembly Bill 929, which took effect on January 1, 2013, made some changes to California bankruptcy exemptions.  Here are some of the highlights of those changes:

  • the motor vehicle exemption increased to $4,800 and you can now exempt more than one vehicle (previously you could only exempt the equity in one vehicle)
  • the homestead exemption amount increased to $24,060
  • the tools of the trade exemption amount increased to $7,175
  • the wildcard exemption increased to $1,280, and
  • you can now exempt personal injury recoveries for pain, suffering, and actual pecuniary loss (before these types of damages were excluded from the personal injury recovery exemption) and the total exemption amount increased to $24, 060.

To learn more about the California bankruptcy exemptions, as well as a list of other common exemption amounts, see Nolo’s article California Bankruptcy Exemptions.

Find Kathleen on Google+

6th Circuit Says Michigan Debtors Can Use Bankruptcy-Only Exemptions

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 (6th Cir. August 20, 2012)) is good news for those filing for bankruptcy in Michigan.

The issue first hit 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.

Here’s what this all means.

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 too.  To learn more, see our Bankruptcy Exemptions area.

Bankruptcy-Only Exemptions

Federal bankruptcy law provides a set of exemptions. (You can find them in our Federal Bankruptcy Exemptions article.)  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 6th Circuit (which covers Kentucky, Michigan, Ohio, and Tennessee) held that Michigan’s bankruptcy-only exemptions were unconstitutional.  But four days ago, the 6th 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.

(Find more information on filing for bankruptcy in Michigan.)

Earned Income Tax Credit (EITC) Exemption is Constitutional, Says Kansas Bankruptcy Court

In a victory for debtors, a Kansas Bankruptcy Court has upheld the constitutionality of Kansas’ newest bankruptcy exemption. The new exemption, which became effective on April 14, 2011, allows Chapter 7 bankruptcy debtors to protect money they receive as a result of the Earned Income Tax Credit (EITC).

How Bankruptcy Exemptions Protect Your Property in Chapter 7 Bankruptcy

In Chapter 7 bankruptcy, the bankruptcy trustee takes all nonexempt property (including tax refunds, cash, personal property, and real estate), sells the property, and uses the proceeds to pay the debtor’s creditors. However, if a debtor’s property is deemed “exempt” by state or federal law, the trustee cannot take the property. In most Chapter 7 bankruptcies, the debtor loses little or no property, because most or all of the debtor’s property is exempt.

For a comprehensive explanation of how exemptions work, which exemptions apply to you, and more, see Nolo’s Bankruptcy Exemptions area.

Kansas’ New Exemption:  EITC

In April, 2011, the Kansas legislature created a new bankruptcy exemption. The new law allows bankruptcy debtors to protect their EITC money. This tax credit is designed to assist low- and moderate-income families. The Kansas law does not allow debtors to protect this money from creditors outside of bankruptcy.

The Trustee’s Challenge to the Kansas EITC Bankruptcy Exemption

The Chapter 7 bankruptcy trustee, in In re Westby, No. 11-40986, 2012 Bankr. LEXIS 1428, (Bankr. Kan. April 4, 2012), challenged the constitutionality of the Kansas exemption. She argued that because the statute applied to bankruptcy proceedings only, and not to other debt collection proceedings, it violated the Uniformity Clause of the Constitution. She also made other constitutional challenges to the law.

Several other courts, most notably the Bankruptcy Appellate Panel in the 6th Circuit, have held that bankruptcy-only exemptions (exemptions that apply in bankruptcy, but do not apply when creditors are trying to collect against a debtor that has not filed for bankruptcy), are unconstitutional. That 6th Circuit BAP decision, In re Schafer, is currently on appeal. Most courts have held that bankruptcy-only exemptions are constitutional.

In this case, the judge, in a 55-page opinion, found that Kansas’ EITC bankruptcy exemption did not violate the Uniformity Clause or any other constitutional provision.

Hold onto your hats, however, because the bankruptcy trustee is likely to appeal the decision.

You can read the full opinion on the website of the Kansas Bankruptcy Court, here: http://www.ksb.uscourts.gov/images/ksb_opinions/JMK_11-40986-45.pdf.