Michigan’s Bankruptcy-Only Exemptions Held Constitutional by 6th Circuit

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.


Inside Michigan’s Bankruptcy-Only Exemptions Held Constitutional by 6th Circuit