Michigan Homestead: 3,500 - Federal: 125,000 - HUH???

[jessiediamond]

I know I'm missing something very basic about the homestead exemption. How is it possible that Michigan's homestead exemption is $3,500 and the federal is $125,000?

Could someone explain what simple thing I'm missing?

And, by they way, am I understanding the homestead exemption correctly: that you can keep a house if the equity is less than $125,000?

Help!

Jessie

PS: In Michigan, you can choose either the fed or the state exemption--but I'm still wondering why the difference is so vast. Clue me in, please! Thanks!

[RedLight]

I couldn't tell you except we moved from Michigan a year ago and will be filing under Federal Exemptions. Michigan's exemptions are terrible, that is why they give you the option of federal.

But I don't think anyone in Michgan has $3,500 in equity in their homes right now anyway with the poor economy.

[lrprn]

I know I'm missing something very basic about the homestead exemption. How is it possible that Michigan's homestead exemption is $3,500 and the federal is $125,000?

The simple answer is states' rights. In the US each state has the right to set their own bankruptcy exemptions. That leads to a great deal of variation (and unfairness) between states.

Unfortunately Michigan is a state with a very low homestead exemption. Luckily though you can choose to use the federal exemptions which are much more generous. Count your blessings. Some crappy exemption states don't allow use of the federal exemptions - those folks are really in a bad way.

...am I understanding the homestead exemption correctly: that you can keep a house if the equity is less than $125,000?

If you use the federal exemptions to file and continue to make full house payments on time every month after filing, yes - the house is protected by exemptions.

[cupcake]

But I don't think anyone in Michgan has $3,500 in equity in their homes right now anyway with the poor economy.

Sadly, that's probably not too far from the truth. I am in Michigan, as well. Five years ago we had approximately $30,000 in home equity. Today, it's possible that we are upside down with the mortgage. That's bad.

[keepmine]

Actually, the Federal exemption is $20,000.
The $125K figure you refer to is, the cap on any equity exemption if the home has been owed for less than 1415 days-a little over 3 years.
The purpose is, to prevent forum shopping. Prior to bk reform, it wasn't unusual for wealthy people to buy a large home in Tx. or Fl. that has an unlimited exemption for equity in a home and then, file bk. A few notables who did this were, Burt Reynolds and the late Bowie Kuhn {former commissioner of baseball and a high powered NYC attorney}.

[lrprn]

If you use the federal exemptions to file and continue to make full house payments on time every month after filing, yes - the house is protected by exemptions.

Drat! I *knew* I should have checked the fed exemptions before answering. Thanks, Keep, for correcting me.

Here's a link to the current federal exemptions approved in 2007 - http://www.bankruptcyaction.com/fedexemptions.htm. Note the amount (as Keepmine notes) is $20,200.

Bottom line is that if your home's equity (current loan value minus current market value) is greater than $20,200, then your home is NOT guaranteed to be safe.

[gymbo]

Drat! I *knew* I should have checked the fed exemptions before answering. Thanks, Keep, for correcting me.

Here's a link to the current federal exemptions approved in 2007 - http://www.bankruptcyaction.com/fedexemptions.htm. Note the amount (as Keepmine notes) is $20,200.

Bottom line is that if your home's equity (current loan value minus current market value) is greater than $20,200, then your home is NOT guaranteed to be safe.

But you can double that if you are married, I believe... to $40,400.