Homeownership & Bankruptcy – What You Need to Know in 2025
How Home Equity Impacts Bankruptcy
When filing for bankruptcy, the amount of equity in your home will determine which chapter of bankruptcy you qualify for. The two most common options for individuals are:
Chapter 7 Bankruptcy: This option provides debt relief through liquidation. However, if your home equity exceeds Michigan’s exemption limits, you may be required to sell the property to satisfy creditors.
Chapter 13 Bankruptcy: This allows you to restructure your debt into a manageable repayment plan over three to five years. If you have substantial home equity, Chapter 13 may be a better option to protect your home while resolving financial difficulties.
Michigan’s Homestead Exemption
Michigan law provides a homestead exemption that allows homeowners to protect a portion of their home equity in bankruptcy. As property values rise, your home’s equity could exceed the exemption limit, potentially affecting your eligibility for Chapter 7 or requiring modifications in Chapter 13 repayment plans.
Important Considerations for Homeowners
Always remember anyone can file bankruptcy. But you do not decide which chapter you qualify for as a consumer. Instead, your financial situation determines which chapter you are eligible for. The common bankruptcy chapters for individuals and small business owners are Chapter 7 and Chapter 13. When considering filing bankruptcy, if you own a home, it is important to know how much equity you are allowed in your home for a Chapter 7 Bankruptcy. The bankruptcy permitted equity for a home is up to $27,900 and for a married couple is up to $55,800. If you exceed the allowed equity amounts, you want to consider that you may have to file a Chapter 13 bankruptcy case.
What Should You Do?
If you are considering bankruptcy, it is crucial to evaluate your home’s current market value and the equity you have built. Consulting with a knowledgeable bankruptcy attorney can help determine your best course of action and protect your most valuable asset—your home.
At Upton Law, PLLC, we specialize in guiding Detroit and Michigan homeowners through bankruptcy while preserving their homeownership. If you need assistance, schedule a consultation today to explore your options.
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Meet the founderShakeena Melbourne
At the heart of Upton Law is Shakeena Melbourne, founder and Principal Attorney, a lawyer who is a fierce advocate for your peace of mind and happiness.
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