One of the most important questions I discuss with a prospective Chapter 7 bankruptcy client is not simply, “Can I file bankruptcy?” It is also, “What happens to my property if I do?”

That question is particularly important for homeowners.

Michigan is somewhat unusual because a bankruptcy debtor can choose between the federal exemptions and the Michigan bankruptcy exemptions. My office frequently uses the Michigan exemptions when they provide a better way to protect equity in a client’s home. Michigan’s bankruptcy-specific exemption statute, MCL § 600.5451, has been upheld as constitutional and provides a number of exemptions that can be substantially more favorable than the federal exemptions in the right circumstances.

But there is a trade-off.

The Michigan exemption scheme can do an excellent job of protecting a client’s home, but it does not provide the broad federal “wildcard” exemption that can be used to protect miscellaneous cash and other assets. As a result, when I use the Michigan exemptions, I often have to explain to a client that we may be deliberately giving up some cash or other liquid assets in order to protect substantially more equity in the client’s home.

In many cases, that is a very good trade.

Michigan’s Homestead Exemption Can Be Extremely Valuable

The Michigan bankruptcy homestead exemption is currently $51,150, and it increases to $76,725 for qualifying debtors who are 65 or older or disabled. These amounts were adjusted effective April 1, 2026.

That can be extremely valuable to a homeowner with significant equity.

But there is another important Michigan rule that can make the protection of a married couple’s home even more significant.

Property owned by a husband and wife as tenants by the entireties can receive special protection in bankruptcy. Generally speaking, entireties property can be protected from the creditors of only one spouse because the creditor does not have a claim against the entireties interest of both spouses. The protection does not apply to joint debts owed by both spouses.

This means that, depending upon how the property is titled and what debts exist, a married couple may be able to protect substantial, and in some circumstances effectively unlimited, equity in their jointly owned home from the creditors of only one spouse.

This is one of the reasons that a careful review of the title to a home, the debts of each spouse, and the applicable exemptions is so important before filing bankruptcy.

There Is a Trade-Off

The Michigan exemptions are not simply “better” than the federal exemptions in every situation.

They are different.

Michigan’s exemption scheme provides a valuable homestead exemption, but it does not contain the broad federal wildcard exemption that can be used to protect virtually any type of property.

Consequently, a debtor who elects the Michigan exemptions may have nonexempt assets that would have been protected, at least in part, under the federal exemption scheme.

This is particularly important with cash, bank accounts, tax refunds, brokerage accounts and earned but unpaid wages.

And this is where the analysis becomes very important.

What About Cash and Money in the Bank?

I want to make an important clarification because this is an area where bankruptcy law is sometimes oversimplified.

Michigan does not have a traditional dollar-for-dollar “cash in the bank” exemption. However, Michigan law does provide an exemption for “provisions and fuel for comfortable subsistence” for six months. A bankruptcy court in the Eastern District of Michigan held in In re Richardson that this provision can include cash on hand and money in bank accounts, depending upon the circumstances. The district court affirmed that decision. U.S. bankruptcy court judges, however, are not legally required to follow the decisions of other bankruptcy judges in their own district, nor are they bound by the decisions of individual District Court judges within that same district. This independent authority stems from the foundational doctrine of stare decisis (legal precedent) and the unique statutory structure of the federal court system.

Therefore, it would be inaccurate to tell a client that every dollar sitting in a checking account automatically becomes nonexempt simply because the Michigan exemptions are being used.

At the same time, Michigan’s exemption scheme does not give a debtor a blanket exemption for an arbitrary amount of money in the bank. Whether money can be protected under the six-month subsistence provision depends upon the particular circumstances and the amount involved. Richardson illustrates why the analysis must be made on a case-by-case basis.

This is one of the reasons I want to know exactly how much money a client has in every bank account on the day the bankruptcy petition is filed.

What Happens to an Income Tax Refund?

Income tax refunds are another asset that must be carefully analyzed.

A tax refund can represent an overpayment of taxes attributable to income earned throughout the year. To determine what portion may belong to the bankruptcy estate, the refund is generally apportioned between the pre-petition and post-petition portions.

For example, suppose you file Chapter 7 on October 1 and ultimately receive a $3,650 federal income tax refund for that year. There are 274 days between January 1 and October 1. A commonly used method of allocating the refund would therefore calculate:

274 ÷ 365 = approximately 75.1%

Applying that percentage to a $3,650 refund would result in approximately $2,741 attributable to the pre-petition portion of the year.

That does not necessarily mean the trustee simply takes that exact amount in every case. The calculation can be affected by the particular circumstances, including the nature of the refund, withholding, credits and applicable exemptions.

The important point is that a tax refund is not something that should be ignored when preparing a Chapter 7 case. Courts have recognized the concept of prorating refunds between the pre-petition and post-petition portions of the tax year.

Michigan itself advises that, in Chapter 7 cases, the Michigan Department of Treasury generally holds a tax refund until the bankruptcy discharge is issued.

That is why I ask clients about expected tax refunds before filing.

What About Money in a Brokerage Account?

A taxable brokerage account is another asset that must be considered.

If you have $25,000 sitting in a Fidelity, Schwab, Merrill Lynch or other taxable investment account, that money is an asset of the bankruptcy estate unless an applicable exemption protects it.

This is very different from a properly protected retirement account.

Retirement Accounts Are Different

Most qualified retirement accounts receive significant protection in bankruptcy.

For example, properly qualified 401(k) plans, 403(b) plans, pension plans and similar ERISA-qualified retirement plans are generally protected. Michigan’s bankruptcy exemption statute specifically protects qualifying retirement interests, subject to statutory limitations.

IRAs and other qualified retirement accounts may also receive substantial protection under applicable federal or Michigan law.

The important distinction is this:

A $50,000 401(k) is not treated the same way as a $50,000 taxable brokerage account.

The fact that both accounts may contain investments does not make them equivalent for bankruptcy purposes.

A trustee generally cannot simply liquidate a properly protected retirement account and distribute it to your unsecured creditors.

A taxable brokerage account is a different story.

What About Wages I Have Earned But Haven’t Been Paid Yet?

Earned but unpaid wages also have to be considered.

If you have worked and earned wages before filing bankruptcy but your employer has not yet paid you, that right to receive those wages can constitute property of the bankruptcy estate.

Michigan does provide a wage exemption. Under Michigan law, a head of household may exempt a portion of earned but unpaid wages—generally 60%, subject to statutory minimums and an additional amount for qualifying dependents. The applicable wage exemption must be calculated under the statute rather than simply assuming that all unpaid wages are exempt.

For example, if you worked for the last two weeks of the month but your paycheck will not arrive until after you file bankruptcy, we have to determine what portion of that paycheck represents wages earned before the filing date and what portion can be protected by the applicable wage exemption.

Again, this is why the timing of a bankruptcy filing can matter.

So What Can the Trustee Actually Liquidate?

The Chapter 7 trustee’s job is to identify property belonging to the bankruptcy estate, determine what property is exempt, and, where there is nonexempt equity worth pursuing, administer that property for the benefit of creditors.

That can include things such as:

• Nonexempt equity in real estate;
• Nonexempt cash or bank account balances;
• Nonexempt portions of tax refunds;
• Taxable brokerage and investment accounts;
• Nonexempt personal property;
• Nonexempt vehicles;
• Certain business interests;
• Earned but unpaid wages to the extent not exempt;
• Other property interests that belong to the bankruptcy estate.

The trustee does not automatically get everything you own.

The exemptions are what determine what you get to keep.

That is why selecting the correct exemption scheme is one of the most important parts of preparing a Chapter 7 bankruptcy case.

Sometimes Giving Up Some Cash Is a Very Good Deal

This is where I think people sometimes look at bankruptcy the wrong way.

Suppose a homeowner has $150,000 of equity in a home and relatively little unsecured debt. We need to determine whether the house is protected under the applicable exemptions.

Now consider another person who has $20,000 sitting in a taxable investment account but very little home equity.

Those two people may have completely different exemption strategies.

In the first situation, the Michigan exemptions may be extremely valuable because of the protection they provide for the homestead and, where applicable, property owned by married couples as tenants by the entireties.

The client may have to surrender some nonexempt liquid assets.

That can sound painful.

But if the result is that the client gets to keep a home with substantial equity while eliminating tens or hundreds of thousands of dollars in credit cards, medical bills, personal loans and other dischargeable unsecured debt, the trade-off may be very much worth it.

I have handled thousands of bankruptcy cases over the years, and one of the most important lessons I have learned is that bankruptcy planning is not simply about trying to keep every dollar a person owns.

It is about determining what property can legally be protected and what financial result gives the client the best fresh start.

Bankruptcy Is About More Than Getting Rid of Debt

When someone tells me, “I don’t want to file bankruptcy because I have $10,000 in the bank,” I often tell them that we need to look at the entire picture.

If that $10,000 is the only significant nonexempt asset standing between you and the elimination of $100,000 of dischargeable unsecured debt, the question is not simply whether you might have to turn over some money.

The question is whether surrendering that money is a reasonable price to pay for obtaining a bankruptcy discharge and keeping the property that matters most to you.

In many Chapter 7 cases, it is.

The purpose of bankruptcy is to give an honest debtor a fresh start. The United States Supreme Court has repeatedly recognized that fresh-start policy as a fundamental purpose of the Bankruptcy Code.

The Bottom Line

Michigan’s bankruptcy exemptions can be an extremely powerful tool for homeowners.

The Michigan homestead exemption, together with the special protection that can apply to property owned by married couples as tenants by the entireties, can sometimes protect equity that would be much more difficult to protect under the federal exemptions.

But there is a trade-off.

When my office recommends the Michigan exemptions, we carefully examine the client’s:

• Home and real estate equity;
• Ownership and title to the property;
• Mortgage balances;
• Joint and individual debts;
• Bank accounts;
• Cash;
• Tax refunds;
• Brokerage accounts;
• Retirement accounts;
• Vehicles;
• Personal property; and
• Earned but unpaid wages.

The goal is not simply to choose the exemption scheme with the largest number.

The goal is to choose the exemption scheme that produces the best overall result for the client.

In many cases, turning over some nonexempt cash, a portion of a tax refund, or another liquid asset to the Chapter 7 trustee is a small price to pay for keeping your home and receiving a bankruptcy discharge that eliminates your unsecured debt.

That is what proper bankruptcy planning is all about.

The exemption laws are complicated, and the amounts and rules can change. The Michigan exemptions discussed above are based on the law and inflation-adjusted amounts applicable in 2026. Your particular circumstances may produce a different result. You should consult with an experienced Michigan bankruptcy attorney before deciding which exemptions to use or when to file bankruptcy.