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Bankruptcy exemptions may protect assets

by | Mar 12, 2020 | Firm News

Many in Michigan hesitate to seek debt relief through bankruptcy because they believe certain myths about the process. This may mean they continue to struggle with a burden of debt from which they may never find relief. One common misconception about bankruptcy is that the one who files can count on losing most of his or her property during liquidation. However, there are state and federal bankruptcy exemptions that allow most filers to retain many of their possessions.

Liquidation is the process of selling one’s valuables to repay as much debt as possible before the rest of those debts are discharged. Someone going through Chapter 7 bankruptcy may deal with liquidation of some assets. However, federal law allows some important exemptions. For example, someone filing for bankruptcy may keep a home that has a certain limit of equity, an amount that is double for spouses filing together. This amount changes every three years.

The same kind of exemptions exist for household goods like furniture, clothing, books and musical instruments. Someone filing for bankruptcy may retain one vehicle with a certain limit of equity. If a filer owns tools or equipment necessary for a job, some of those tools may be exempt, and all health aids are exempt from liquidation.

Many who investigate debt relief through bankruptcy are surprised at the types and amounts of bankruptcy exemptions that are available. In Michigan, a filer may choose to accept the state exemptions or the federal ones. With the skill of an experienced attorney, someone seeking a fresh financial start may learn whether this step is appropriate and how to make the best use of any exemptions.