Bankruptcy Cases in the News
State Exemptions #1
The 6th Circuit Court of Appeals decided a very interesting and debtor friendly case recently. In re: Steven M. Schafer, Case No.: 11-13401387, the 6th Circuit Court reversed lower court holdings that had determined that Michigan’s so-called “bankruptcy exemptions” were unconstitutional.
This is pretty esoteric stuff, but the bottom line is that Michigan has a general exemption statute and the so-called bankruptcy exemptions statute, the latter of which provide more generous exemptions for debtors. In filing a case a debtor in a state like Michigan (which has it’s own statute) must elect to proceed under federal or state exemptions. Earlier rulings struck down the so-called state bankruptcy statute holding in essence that it was an impermissible conflict of state and federal law for Michigan to have “bankruptcy” exemptions because only the U.S. Congress could create these laws as it is to do so under the U.S. Constitution and controls the entire bankruptcy field. One of the main arguments advanced for federal control was to give uniformity and not create conflicts from state to state.
The 6th Circuit disagreed, holding:
Indeed, on an as-applied basis, the Michigan statute actually furthers, rather than frustrates, national bankruptcy policy. As the Supreme Court has repeatedly noted, the goal of the Bankruptcy Code is to provide debtors in bankruptcy with a fresh start. Marrama v. Citizens Bank of Mass., 549 U.S. 365, 367 (2007) (“The principal purpose of the Bankruptcy Code is to grant a fresh start to the honest but unfortunate debtor.”) By permitting debtors in bankruptcy a higher homestead exemption than either the general state exemption statute or the federal exemption statute allow, bankruptcy debtors in Michigan are better able to achieve a fresh start and to obtain “a new opportunity in life with a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.” Grogan v. Garner, 498 U.S. 279, 286 (1991). Accordingly, Michigan’s bankruptcy-specific exemption statute frustrates the full effectiveness of national bankruptcy policy no more than other statutory frameworks that have survived our scrutiny.
As noted in Schafer the so-called bankruptcy exemptions under MCL 600.5451 are substantially more generous to the debtor than it’s federal counterpart in 11 USC 522 (d)(1) or the general exemption statute MCL 600.6023. Indeed, with respect to home equity for an individual debtor (or homestead) it is double the federal statute for a 65 year old debtor or handicapped debtor. This is pretty good news for the debtor but makes things more difficult for the Trustee whose compensation is largely contingent upon the amount of money collected.
The bottom line is that elderly and handicapped debtors are really aided by this decision. These honest but unfortunate individuals will get a larger nest egg to embark on their fresh start with.
[Guy Vining, a bankruptcy attorney, in metro-Detroit, maintains his office in Taylor, Michigan, where he serves the downriver communities of Monroe, South Rockwood, Gibraltar, Brownstown Township, Grosse Ile, Woodhaven, Trenton, Southgate, Riverview, Allen Park, Lincoln Park, Dearborn, Dearborn Heights, Westland, Wayne, and Ecorse. If you or a family member of friend would like a no-obligation no cost consultation/financial analysis, just call or E-mail Guy Vining of Vining Law Group, P.L.C to schedule a meeting.]