In 11 U.S.C. § 522(b), Congress provided that a state may choose the exemption scheme available to any debtor filing for bankruptcy relief within its borders. For example, debtors filing bankruptcy petitions in Ohio and Tennessee are not eligible to claim the federal exemptions enumerated in § 522(d) because the state law applicable to those debtors specifically “does not so authorize.” See 11 U.S.C. § 522(b)(2); Ohio R.C. § 2329.662; T.C.A. § 26-2-112. In other words, those states and many others have “opted out” of the federal exemption scheme.

Michigan, on the other hand, has not opted out. When Michigan debtors file bankruptcy petitions they can choose to exempt property under the federal exemption scheme found in 11 U.S.C. § 522(b)(2) and (d), or under the state exemption scheme of 11 U.S.C. § 522(b)(3).  Should Michigan debtors choose the so-called “state exemptions,” they then have a choice to select exemptions under M.C.L. § 600.6023, which are generally applicable to all judgment debtors, or exemptions under M.C.L. § 600.5451, which are available only to debtors in bankruptcy.

In Michigan, debtors with significant equity in their homes should consider electing  the state exemptions under M.C.L. § 600.5451(1)(n).  This statute provides a much more generous homestead allowance than any alternative. Debtors who are either older than sixty-five years of age or disabled may claim up to $51,650.00 in homestead value.  Other debtors may exempt up to $34,450 in homestead value under this subpart.  The federal exemption available to debtors, relative to their residential real estate, is capped at $20,200.00.

However, if you have little or no equity in your home, the federal exemption scheme can be more advantageous because part of the residential real estate exemption that is not used can instead be used as a “wildcard” exemption. 11 U.S.C. § 522(d)(5) allows a debtor to protect his or her “aggregate interest in any property [not just real estate], not to exceed in value $1,075 plus up to $10,125 of any unused amount of the” residential real estate exemption. (Note that the dollar amounts in this subsection adjust every three years and were adjusted this year; the current amounts can be discussed with a bankruptcy attorney).

Debtors in Michigan should also consider that MCL 600.5451 provides bankruptcy exemptions for various other assets; the entire provision is available here. The amounts of the exemptions under MCL 600.5451 are updated every three years at account for cost of living changes; the current numbers are available here. Debtors outside of Michigan should discuss with a bankruptcy attorney whether their state has similar provisions which could be beneficial in their case.

In states like Michigan, where a debtor is able to choose between state and federal exemption regimes, the decision can be highly fact sensitive and the outcome will depend not only upon how much equity you have in a homestead but also, upon what other types of assets you may be seeking to exempt.  Therefore, you should discuss this issue with an experienced bankruptcy attorney in your jurisdiction. Disclosing all of your assets to your attorney is vital not only to determining which exemption scheme is right for your case, but also to your bankruptcy proceeding as a whole.

-Drew Broaddus