Bankruptcy Basics in Michigan
About this article
Sourced from primary statutes (U.S. Code, CFR, state compiled statutes) and official government agency guidance. Written in plain language for general understanding — this is educational content, not legal advice. Our editorial standards
How Michigan differs from federal law
Michigan offers a choice between state and federal bankruptcy exemptions, giving debtors flexibility:
- Michigan debtors can choose either state exemptions or federal exemptions — this choice is significant and depends on your assets
- Michigan homestead exemption: $44,625 per person of equity in a primary residence
- The federal exemption alternative is often preferred by non-homeowners due to its more generous wildcard exemption
- Federal wildcard exemption allows protecting additional personal property beyond specific categories
- Retirement accounts (401(k), IRA, pension) are generally fully exempt from bankruptcy under both state and federal systems
- Michigan median income thresholds determine eligibility for Chapter 7 vs. Chapter 13
- Michigan has a 720-day residency requirement for claiming state exemptions
Additional Steps in Michigan
Consult a Michigan bankruptcy attorney to determine whether state or federal exemptions are better for your situation. Find free legal aid through Michigan Legal Help at michiganlegalhelp.org. Pre-filing credit counseling is required — find approved agencies at justice.gov/ust. File in the U.S. Bankruptcy Court for the Eastern or Western District of Michigan.
Relevant Law: 11 U.S.C. § 522(b) (exemption choice). MCL § 600.6023 (Michigan homestead exemption). Federal exemptions under 11 U.S.C. § 522(d).
Federal baseline: Bankruptcy Basics nationwide
What is this right?
Bankruptcy is a federal court process that exists to give people in over their heads a way out — a clean slate (Chapter 7) or a structured payoff (Chapter 13). It's been a part of American law since the Bankruptcy Act of 1898, restructured significantly by the Bankruptcy Reform Act of 1978, and tightened in 2005 by BAPCPA, which added the means test that decides who can file Chapter 7. The moment you file, the automatic stay under 11 U.S.C. § 362 kicks in: creditor calls stop, lawsuits freeze, garnishments halt, foreclosures pause. That single feature is why people file even when they could limp through.
For individuals, the two main paths are Chapter 7 (liquidation — most unsecured debts are wiped, takes 3–6 months) and Chapter 13 (a 3–5 year court-supervised repayment plan, useful when you want to keep a home you're behind on). Which one fits depends on your income, what you own, and what kinds of debts you have. Some debts — most student loans, child support, recent taxes, fraud judgments — survive either way.
When does it apply?
Bankruptcy is worth considering when:
- You can't pay debts as they come due and don't see a realistic path to catching up.
- Creditors are suing, garnishing wages, or moving on your property.
- Medical bills, credit cards, or other unsecured debt have crossed the line into unmanageable.
- You're facing foreclosure and need to catch up on mortgage arrears (Chapter 13 territory).
Chapter 7 vs. Chapter 13:
- Chapter 7 — the fresh start. Wipes most unsecured debt (credit cards, medical, personal loans). You have to pass the means test — generally, household income below your state's median. The case wraps in 3–6 months. Non-exempt assets can be sold, but in practice most filers keep everything because state and federal exemptions cover their property.
- Chapter 13 — the wage earner's plan. You keep your property but commit 3–5 years of disposable income to a court-supervised repayment plan. Requires regular income. Debt limits as of 2026: secured debts under $1,580,125 and unsecured debts under $526,700 (separate caps, adjusted every three years; the temporary pandemic-era combined $2,750,000 threshold expired June 2024). The standard reason to file Chapter 13 is to stop a foreclosure and roll mortgage arrears into the plan.
What bankruptcy can't erase:
- Most student loans (you have to prove "undue hardship" — historically a brutal standard, though the DOJ's 2022 guidance and several recent decisions have made it more attainable).
- Child support and alimony.
- Most tax debts (older taxes meeting specific tests can sometimes go).
- Debts from fraud, DUI injuries, or willful and malicious harm.
- Court-ordered restitution and criminal fines.
Three myths:
- "Bankruptcy ruins your life." It sits on your report for 7–10 years, but most filers see a credit score recovery beginning within 12–24 months. It's a legal tool. Treat it like one.
- "I'll lose everything." Most Chapter 7 filers walk out with all of their property. State exemptions protect homes (up to varying caps), cars, clothing, retirement accounts, and tools of trade. Texas and Florida have famously generous homestead exemptions.
- "Just file." Required credit counseling before filing, financial management course before discharge, the means test, schedules of assets and debts, the 341 meeting with the trustee. It's manageable but not casual.
What to Do If You're Considering Bankruptcy
Step 1: Take the credit counseling. Required within 180 days before filing, from a DOJ-approved provider. List at justice.gov/ust. Usually costs $25–$50, takes about an hour.
Step 2: Pull your documents. Two years of tax returns, six months of pay stubs, all bank statements, a complete debt list with creditor addresses and balances, and an inventory of everything you own with rough values.
Step 3: Pick your chapter. Income below your state's median? Chapter 7 is presumptively open to you. Above? You either pass the longer means test or file Chapter 13.
Step 4: Talk to a bankruptcy attorney. Most offer free first consultations. Typical fees: $1,500–$3,500 for Chapter 7, $2,500–$6,000 for Chapter 13 (Chapter 13 fees usually fold into the plan). Can't afford one? Your district's legal aid office or law school clinic likely handles bankruptcies.
Step 5: File. The petition, schedules, and statements go to the U.S. Bankruptcy Court for your district. The automatic stay under § 362 takes effect the moment the petition is filed — creditor calls, lawsuits, garnishments, and foreclosures all freeze.
What should you NOT do?
Don't move assets or pay back family before filing. The trustee can claw back transfers made within two years ("fraudulent transfers") and payments to insiders within one year ("preferential transfers"). This can derail the case or trigger a fraud finding.
Don't load up the credit cards right before filing. Under 11 U.S.C. § 523(a)(2)(C), luxury purchases over $900 within 90 days of filing and cash advances over $1,250 within 70 days are presumed non-dischargeable (thresholds adjust every three years). Doing it on purpose looks like fraud.
Don't go pro se unless the case is dead simple. Bankruptcy is technical. A missed exemption can cost you a car. A wrong debt classification can leave a creditor with claims that should have been discharged.
Don't hide anything. The trustee reviews bank statements, tax returns, and asset disclosures. Bankruptcy fraud is a federal crime under 18 U.S.C. § 152, and judges revoke discharges for it. Tell your lawyer everything — including the embarrassing things.
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