Bankruptcy can be a smart strategy for many people in debt, but those who receive funds due to a work-related medical condition often have a critical question: Is workers’ compensation considered income for bankruptcies in Michigan?
No, workers’ compensation benefits are not usually considered income in Michigan bankruptcy cases. However, the treatment of workers’ compensation benefits may vary depending on the type of bankruptcy and other factors.
However, there are some exceptions to the general rule that could put your worker’s compensation benefits at risk. It’s best to work with a Michigan bankruptcy lawyer who can advise you on protecting the financial support you rely on when dealing with a workplace injury or occupational illness.
In addition, you can read on for some background on how workers’ comp benefits are treated in Chapter 7 and Chapter 13 bankruptcy cases.
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FAQs About Bankruptcy and Workers Comp Income
What is considered income for bankruptcies?
In bankruptcy cases, income includes any money received by the filer regularly, such as wages, self-employment earnings, rental income, pension payments, and Social Security benefits. However, workers’ compensation benefits are generally not considered income under federal bankruptcy law.
These benefits are typically exempt from the income calculation used in the means test for Chapter 7 or disposable income assessment in Chapter 13. Accurate reporting is essential for compliance with bankruptcy requirements.
These benefits are typically exempt from the income calculation used in the means test for Chapter 7 or disposable income assessment in Chapter 13. Accurate reporting is essential for compliance with bankruptcy requirements.
What assets are exempt from Chapter 7 in Michigan?
Michigan law provides exemptions to protect specific assets during Chapter 7 bankruptcy. Common exemptions include:
Homestead Exemption: Protects equity in a primary residence up to a specified limit.
Personal Property Exemptions: Covers clothing, household goods, and furniture up to a certain value.
Vehicle Exemption: Protects the value of one motor vehicle within a statutory limit.
Wage and Benefit Exemptions: Safeguards wages, workers’ compensation, and Social Security benefits.
These exemptions aim to help filers retain essential items and regain financial stability after bankruptcy.
Homestead Exemption: Protects equity in a primary residence up to a specified limit.
Personal Property Exemptions: Covers clothing, household goods, and furniture up to a certain value.
Vehicle Exemption: Protects the value of one motor vehicle within a statutory limit.
Wage and Benefit Exemptions: Safeguards wages, workers’ compensation, and Social Security benefits.
These exemptions aim to help filers retain essential items and regain financial stability after bankruptcy.
Do you lose retirement accounts in bankruptcies?
Retirement accounts are typically protected in bankruptcy through exemptions under federal and Michigan laws. Accounts like 401(k)s, IRAs, and pension plans are usually exempt from creditors. Traditional and Roth IRAs have a federal exemption limit (currently over $1.5 million), while qualified ERISA accounts are fully protected. Proper filing protects these items.
Is unemployment compensation exempt under Michigan bankruptcy laws?
Unemployment compensation is generally exempt under Michigan bankruptcy laws. State and federal exemptions protect these benefits, so that they are not included in the bankruptcy estate or seized by creditors. Accurate reporting and proper documentation are essential to safeguard these funds during bankruptcy proceedings.
How much equity can I have in my home and still file Chapter 7 in Michigan?
Under Michigan’s homestead exemption, filers can protect up to $40,475 in equity for a primary residence. For married couples filing jointly, this amount increases to $60,725. Michigan residents aged 65 or older or those with disabilities may qualify for additional protections. These limits allow filers to safeguard their homes during Chapter 7 bankruptcy while liquidating other non-exempt assets to repay creditors.
Can you keep your car in Chapter 7 in Michigan?
Yes, Michigan’s vehicle exemption allows filers to protect up to $3,775 of equity in a single motor vehicle. If the filer owes money on the car loan and the equity is below this limit, they can often keep the vehicle by reaffirming the loan or continuing payments. For cars with higher equity, the filer may need to negotiate with the trustee or use other exemptions to cover the excess value and retain the vehicle.