How Much Home Equity Can You Keep If You File Bankruptcy in Michigan?

Understand Michigan’s Homestead Exemption Rules and Protect Your Equity During Bankruptcy

You’ve worked hard to build equity in your home.

Now, with bankruptcy on the table, you might be asking yourself: “Will I lose it all?” That fear is real—and for Michigan homeowners with significant home equity, it's often the biggest reason they delay filing altogether.

But here’s what most people don’t realize: bankruptcy laws actually include protections designed to help you keep your home—even if you’ve built up a lot of value in it. These protections are called exemptions, and understanding how they work is the key to protecting what you’ve earned.

Before you assume the worst, take a deep breath. Michigan’s homestead exemption may offer more protection than you think.

In the blocks below, we’ll walk you through how home equity is treated in bankruptcy, how exemptions apply, and what options you still have—even if your home’s value has recently increased.

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What Is Home Equity and Why Does It Matter in Bankruptcy?

Home equity is the difference between what your house is worth and what you still owe on it. Think of it like this:

Your home is worth $200,000
You still owe $150,000 on the mortgage
That means you have $50,000 in equity

In a bankruptcy case, this equity is treated as an asset. Just like a car or savings account, your home’s equity counts toward your total net worth—and that matters when the court decides what you get to keep.

Here’s the good news: you’re allowed to protect a certain amount of equity through what's called the homestead exemption. If the equity in your home is within the allowed exemption amount, the bankruptcy trustee typically cannot force you to sell your home in a Chapter 7 case.

But if your equity exceeds that protected amount, the outcome depends on which type of bankruptcy you file. We’ll explain that next—and show you how the numbers play out in Michigan.

Michigan’s Homestead Exemption Limits

Michigan offers homeowners a homestead exemption, which allows you to protect a portion of your home equity when filing for bankruptcy. These limits are updated periodically to account for inflation and other economic factors.

As of 2025, the exemption amounts are:

$43,950 for most individuals
$65,725 if you are over age 65 or disabled

That means if your equity is less than or equal to the exemption, it’s generally safe from creditors in a Chapter 7 bankruptcy. But if your equity is higher, the excess could be used to pay off debt—unless you file under Chapter 13 or take other protective action.

You can verify these exemption amounts through trusted legal resources and government guidance:

✅ Nolo – Michigan Bankruptcy Exemptions
✅ Michigan.gov – Exemptions Overview

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How Equity Is Treated in Chapter 7 vs. Chapter 13

Understanding how your home equity is handled in bankruptcy is crucial, as it varies significantly between Chapter 7 and Chapter 13 filings.

🏠 Chapter 7 Bankruptcy: Potential Liquidation

In a Chapter 7 bankruptcy, if your home equity exceeds Michigan's homestead exemption limits—$43,950 for individuals or $65,725 if you're over 65 or disabled—the excess equity is considered non-exempt. This means the bankruptcy trustee may sell your home to pay off creditors, distributing the proceeds accordingly. However, if your equity is within the exemption limits, you can typically retain your home.

🔄 Chapter 13 Bankruptcy: Repayment Plan

Chapter 13 bankruptcy allows you to keep your home regardless of the amount of equity. Instead of liquidation, you enter a repayment plan spanning three to five years, during which you repay creditors a portion of your debts. The plan must account for any non-exempt equity, ensuring creditors receive at least as much as they would under a Chapter 7 liquidation.

📊 Visual Comparison

Aspect	Chapter 7	Chapter 13
Home Equity Treatment	Non-exempt equity may lead to sale	Keep home; repay non-exempt equity over time
Duration	Typically 3–6 months	3–5 years repayment plan
Asset Liquidation	Possible for non-exempt assets	Generally none

Understanding these differences can help you make informed decisions about protecting your home equity during bankruptcy proceedings.

What If My Equity Exceeds the Exemption?

If your home equity is higher than Michigan’s homestead exemption, you’re not automatically doomed to lose your house—but you do need a plan. Here are three ways homeowners in your situation often protect their property:

✅ 1. Sell Before Filing

If your equity is too high, you might choose to sell your home at fair market value before filing for bankruptcy. This allows you to:

Control the sale and pricing
Use the exempt portion of the proceeds to start fresh
Pay down debts with the remaining funds, potentially avoiding bankruptcy altogether

✅ 2. File Under Chapter 13 Instead

Unlike Chapter 7, a Chapter 13 bankruptcy lets you keep the home even if your equity exceeds the exemption. The catch? You’ll need to repay the non-exempt portion of your equity (the amount above the exemption) through a 3–5 year repayment plan.

✅ 3. Buy Back the Non-Exempt Equity

Sometimes, you can negotiate with the trustee in a Chapter 7 case to “buy back” the portion of equity that’s not protected. This might involve:

Using exempt assets or borrowed funds
Making a lump sum or structured payment agreement

This option is less common but worth discussing with a qualified bankruptcy attorney.

✅ External Link: Cornell Law – Exempt Property in Bankruptcy

"When you mentioned that you would give us an offer within 24 hours and then close quickly I didn’t really believe that we would have the house sold in only 2 weeks. I’m glad I found you.”

Michelle L. - Michigan

When the Exemption Might Not Protect You

Even if you’re within Michigan’s homestead exemption limits, certain situations can still put your home at risk. Here are some common red flags that could cause problems:

🔺 1. Your Home’s Value Recently Jumped

If your property has significantly appreciated—especially in a hot market—your current equity might be higher than you realize. A recent appraisal or tax assessment could push your equity above the exemption threshold without you knowing it.

🔺 2. You Haven’t Lived in the Home Long Enough

To use the full Michigan homestead exemption, you typically must have lived in the home for a minimum amount of time (often at least 1,215 days before filing). If not, your exemption could be reduced under federal law.

🔺 3. You Transferred Ownership or Title

If you recently added someone to the deed, moved the home into a trust, or transferred ownership—even within your family—the court may consider this a fraudulent conveyance. This can disqualify you from using the exemption or trigger asset recovery efforts.

These issues don’t automatically mean you’ll lose your home, but they do complicate your case. It’s critical to address them early—and honestly—before filing for bankruptcy.

✅ Optional Internal Link (contextual only):
What Happens If One Heir Refuses to Sell a House in Michigan – may apply if partial ownership or family disputes are involved.

Alternatives If You’re at Risk of Losing Equity

If your home equity puts you over the exemption limit and you're not comfortable risking your property in bankruptcy, you still have other options. The right move depends on your goals, timeline, and financial situation. Here are a few paths Michigan homeowners consider:

💡 Sell Before You File

Selling your house before bankruptcy gives you control over the process—and the proceeds. You can:

Pay off debts directly and potentially avoid filing altogether
Use the exempt portion to relocate or stabilize your finances
Avoid liquidation by a bankruptcy trustee

If you're already thinking about a sale, it may make sense to act now—before the court gets involved.

✅ Internal Link:
Sell House Fast to Avoid Bankruptcy in Michigan

🏠 Downsize or Relocate

Sometimes, moving into a smaller or less expensive property allows you to capture your equity without exceeding exemption limits. You can apply your exempt proceeds toward a new start—without the risk of a forced sale.

🔄 Refinance or Restructure Debt

If you’re still working or have income, you might qualify for refinancing or a debt restructuring plan that prevents the need for bankruptcy. This route takes longer but can preserve both your equity and credit profile.

Every situation is different. The key is acting before the court limits your choices.

Talk to a Local Buyer Who Understands Michigan’s Equity Rules

If you're worried about losing your home equity—or you're simply unsure what to do next—you're not alone. Many Michigan homeowners face the same difficult decisions. The good news? You don’t have to figure it all out on your own.

At 👉 Dennis Buys Houses, we’ve helped hundreds of people navigate tough financial situations, including bankruptcy. We understand Michigan’s homestead exemption rules, and we can help you explore your options without pressure. Whether selling now makes sense or not, you’ll get honest guidance from someone who actually listens.

If you decide to sell, we can make a fast, cash offer for your home—even if you’re in a complicated financial situation. No repairs, no showings, and no commissions.

See why so many people recommend us...

“Mr. Fassett – thank you for working with us to buy my Mom’s home after she passed away. When you mentioned that you would give us an offer within 24 hours and then close quickly I didn’t really believe that we would have the house sold in only 2 weeks. I’m glad I found you.”

Michelle L. - Michigan

“Thanks for buying my Mother’s home. It was a big help that you were able to buy it without us having to clean it out and get it ready to sell. My mother had accumulated lots of stuff and after the stress of her long illness I was exhausted and I dreaded dealing with all of it. I also liked it that you gave me a very fair price for the home. I’m on a fixed income and that really helped a lot.”

Henry G. - Michigan

“Dennis – thank you for helping us with our Mom’s home. This was a very traumatic experience for us, and we appreciated your patience with all the emotions we experienced during the process. You were really patient and understanding with us during the sale process, and we’re sure that Mom’s home will be in good hands. God Bless.”

Claudia and Nancy M. - Michigan

We Help Michigan Families Navigate These Situations Every Day

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At Dennis Buys Houses, we’re not just cash buyers — we’re trusted problem-solvers who help Michigan families find real answers during difficult times.

Since 2004, we've been helping homeowners across Michigan sell their properties quickly and easily—without the stress of agents, repairs, or hidden fees.

We’re a family-owned, local business with deep roots in the community. Over the years, we’ve helped hundreds and hundreds of homeowners in situations just like yours—whether they’re dealing with delinquent property taxes, foreclosure, or simply needing a fresh start.

If you're dealing with a tough family situation and don’t know where to turn, we’re here to help.

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