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 a good news for those filing for bankruptcy in Michigan. Earlier, in 2011, the Sixth Circuit Bankruptcy Appellate Panel held that Michigan’s bankruptcy-specific exemptions (found in Mich. Comp. Laws §600.5451) were unconstitutional. This decision has been reversed now by the 6th Circuit.
Generally, bankruptcy exemptions allow a debtor to keep certain types of property, often up to certain amounts of equity. Federal bankruptcy law provides a set of exemptions and each state has a set of exemptions as well. Usually, those exemptions can be used in bankruptcy to protect property from judgment creditors. However, some states including Michigan have a set of state exemptions that apply only in bankruptcy. These exemptions referred to as bankruptcy-only exemptions which were held unconstitutional by the Bankruptcy Appellate Panel in the 6th Circuit are now held constitutional by the 6th Circuit Court of Appeal.
As a result, bankruptcy filers in Michigan can now 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. It’s always better to have more options, and for many bankruptcy filers in Michigan, the bankruptcy-only exemptions would protect more property.