What are Bankruptcy Exemptions?

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Bankruptcy exemptions are a set of laws that determine what property you may keep after filing bankruptcy. Bankruptcy exemptions exist in both Federal and state law. The different exemption laws vary and in Michigan you may generally choose to elect either Federal or State law exemptions. An exemption analysis is critical before choosing to file for bankruptcy.

In General

Most State and Federal exemptions generally include the following: homestead, personal property, payments needed to support yourself, qualified retirement accounts, and a “wildcard” exemption. Keep in mind, the exemptions are limited to certain dollar amounts, which are adjusted every 3 years for cost of living.

This means that you will not have to give up the shirt off your back to file bankruptcy. You are allowed to keep living essentials, a modest amount of personal property, and a limited interest in your residence. The “wildcard” exemption allows you to exempt anything, regardless of whether it falls under an exemption, up to a certain amount. If you have unused homestead exemption, you can generally use a portion of that towards your “wildcard” exemption.

Exemptions in Chapter 7 or Chapter 13?

Chapter 7 Bankruptcy is commonly referred to as a liquidation — that is, any property not covered under bankruptcy exemptions will be liquidated and used to pay your creditors. This is why an exemption analysis is critical. If you have a large amount of non-exempt property that you wish to retain, Chapter 13 bankruptcy might work better for you.

Chapter 13 Bankruptcy is a reorganization process that allows you to keep your property and pay back a portion of your debt through a payment plan. Since you are generally keeping your property in a Chapter 13 case, exemptions play a factor in determining how much you will have to pay (Learn more about Chapter 7 and Chapter 13 here).


Each case is unique, and an exemption analysis is the first step to determining whether or not you should file bankruptcy and, if so, which chapter you should file. Understanding proper exemption analysis is critical to a successful bankruptcy case. The information above is general in nature, and you should speak to a licensed bankruptcy attorney in your jurisdiction before filing bankruptcy.

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DISCLAIMER: The information contained above is general in nature and provided as reference material only. This information is not specific legal advice about the application of the law to a particular fact scenario, nor does it replace (or purport to replace) any requirement to obtain specific legal advice. This information is not intended to and does not create an attorney client relationship. If you require legal advice, that advice should always be obtained from a qualified legal practitioner in your jurisdiction.

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