The Golden Age in Michigan's Homestead Exemption

When a business fails, the creditors’ quest for collectible assets sometimes turns from the empty coffers of the business to the pockets of any co-obligor principals, with homestead equity often being pursued as a key potential asset.

When this occurs, principals are sometimes forced to seek refuge in bankruptcy to stop creditor collection activity, including attempts to lien or foreclose on their homestead.  In Michigan, a debtor has two primary options to exempt homestead equity.[1]  The first option is the federal exemption under 11 U.S.C. § 522(d)(1), which provides a $22,975 exemption for a homestead, and permits joint-filing spouses to double-dip for an aggregate $45,950 exemption.[2]  The second option is the state exemption found under MCL 600.5451(1).  Subsection (n) offers a 100% exemption for all real property jointly owned by spouses, called “tenancy by the entireties” property.  This exemption does not apply to joint debt of a husband and wife.  Subsection (m) then provides a capped $30,000 homestead exemption for those who do not qualify under subsection (n).  Therefore, the choice between the federal and state exemptions normally hinges on whether the homestead is “entireties property” and whether both spouses are liable on the debt. 

However, for debtors 65 years old or older (a primary demographic for business principals with significant equity in their homesteads) who do not own their homestead “by the entireties” or who have joint debt with their spouse, Michigan has enacted a statute that offers more generous exemption amounts.  MCL 600.5451(1)(m), enacted in 2004,[3] offers a little-known carve out that allows senior debtors a fixed exemption of $52,925 in the value of their home.[4]  After April 1, 2014, this amount is set to increase even further, to $56,650,[5] which will then exceed the Federal exemption by more than $10,000.[6]  It is important to note that this exemption also applies to debtors even outside of bankruptcy, meaning that creditors pursuing debtors in state court can only seek to liquidate a homestead if there is equity in excess of the permitted exemption, providing senior debtors with a potentially valuable tool to fend off creditors.

Given that many of Michigan’s seniors either actively serve or have served as business principals,[7] many amassing significant equity in their homesteads during their lifetime of hard work, MCL 600.5451(1)(m) presents seniors with a better (if not “golden”) opportunity to protect their homes.