Here’s what most people worry about first when they’re considering bankruptcy: losing their house. It’s understandable. Your home represents stability, memories, and often your biggest financial investment. But the reality is more reassuring than you might think. Many people who file for bankruptcy in Michigan keep their homes. Whether you’ll be one of them depends on a few key factors. How much equity do you have? Are you current on your mortgage? Which bankruptcy chapter makes sense for your situation? Let’s break this down.
Michigan’s Homestead Exemption
Michigan law protects your primary residence through something called the homestead exemption. Right now, that exemption shields up to $45,000 in home equity. If you’re elderly or disabled, the protection increases to $67,500. Equity is what you’d walk away with if you sold your house today and paid off the mortgage. Say your home’s worth $230,000, and you owe $200,000. You’ve got $30,000 in equity. That falls comfortably within Michigan’s protected range. A Warren bankruptcy lawyer can run these numbers with you and determine whether the homestead exemption covers your situation. Sometimes the math isn’t as straightforward as it seems.
Chapter 7 vs. Chapter 13 Bankruptcy
The bankruptcy chapter you choose makes a massive difference in what happens to your house.
Chapter 7 liquidates non-exempt assets to pay creditors. Sounds scary, right? But here’s what actually happens in most cases. If your equity stays within the homestead exemption limits, you keep your house. Period. You do need to keep making mortgage payments, though. During bankruptcy. After bankruptcy. The discharge wipes out your personal liability for the mortgage debt, but the lender’s lien doesn’t disappear. Miss payments and you’re still looking at foreclosure. Most people filing Chapter 7 have little to no equity anyway. They’re drowning in credit card debt, medical bills, or other unsecured obligations. The house isn’t the problem.
Chapter 13 works completely differently. You’re not liquidating anything. Instead, you’re reorganizing your debts into a repayment plan that spans three to five years. This option gives homeowners some real advantages:
- You can spread out missed mortgage payments over the plan’s duration
- Foreclosure proceedings stop the moment you file
- You keep your home, no matter how much equity you have
- Your monthly payment gets calculated based on your actual income
Chapter 13 really shines when you’ve fallen behind on your mortgage but have a steady income coming in. It buys you time and creates a realistic path forward.
What Happens to Your Mortgage
Your mortgage doesn’t just vanish in bankruptcy. The automatic stay kicks in when you file, which temporarily halts foreclosure. That gives you breathing room. But the lien stays attached to your property. In Chapter 7, you’ll probably reaffirm your mortgage debt. Basically, you’re telling the lender you’ll remain personally liable and keep making payments as if bankruptcy never happened. Most people who want to stay in their homes choose this route. Chapter 13 incorporates your mortgage into the repayment plan. Behind on payments? Those arrears get spread across the plan’s timeline. You catch up gradually while keeping the roof over your head.
Additional Considerations
A few other factors can affect whether you’ll keep your home. Second mortgages create interesting possibilities in Chapter 13. If your home’s value has dropped below what you owe on the first mortgage, you might be able to strip off that second lien entirely. It gets treated as unsecured debt. Joint ownership complicates things. If you co-own the property with someone who isn’t filing bankruptcy, you’ll need specific guidance on how that impacts the case. Rental properties don’t qualify for the homestead exemption. Investment properties get treated differently from your primary residence. Working with Gudeman & Associates, P.C. helps you understand which bankruptcy chapter fits your circumstances and how Michigan law can protect what matters most.
Making the Right Decision
Bankruptcy offers a genuine fresh start. But it requires planning if you want to protect your assets. Can you keep your house? It depends on your equity, whether you’re current on payments, your income, and which chapter you file under. Those aren’t small details. They’re the whole ballgame. If foreclosure’s looming or you’re struggling to make mortgage payments, don’t wait until you’re out of options. A Warren bankruptcy lawyer can walk you through everything available before you make any decisions. Understanding Michigan’s exemption laws and how the different bankruptcy chapters work gives you the best shot at keeping your home while getting out from under crushing debt.
