Michigan Unemployment Benefits and Bankruptcy: Asset and Income
In Chapter 7 or Chapter 13 bankruptcy, Michigan unemployment benefits are both income that must be considered in calcuating the "means test" that is the barometer both for Chapter 7 eligbility and for determining the necessary length of a Chapter 13 payment plan and, in terms of being a right to be paid, an asset that must be listed and exempted (protected) along with the rest of your more material assets and possessions.
Michigan Unemployment Benefits and Bankruptcy: Unemployment Benefits as Income
Michigan unemployment benefits are income that must be calculated in the income eligiblity standard included in the US Bankruptcy Code known as the "means test." The means test governs two things: (1) whether you are eligibile for Chapter 7 bankruptcy in terms of your entire household's income in a Chapter 7 context; and (2) whether, in a Chapter 13 bankruptcy context, you are eligible for a 36-month Chapter 13 payment plan or whether you must do a longer, up-to-60-month Chapter 13 payment plan (and it can also affect the amount of money per month that you must pay in your Chapter 13 bankruptcy as well). In some jurisdictions around the country, unemployment benefits derived from or classifiable as Social Security benefits may be excluded from the bankruptcy means test. However, Michigan unemployment benefits must generally be calculated as "current monthly income" for purposes of the means test for Chapter 7 and Chapter 13 bankruptcies filed in the Eastern and Western Districts of Michigan Federal Bankruptcy Courts. Here in Michigan, judicial precedent holds generally that Michigan unemployment benefits are to be included as current monthly income in the means test. However, in Chapter 13 bankruptcies, if the unemployment has a termination date or a point at which the benefits will expire, that information can under a recent US Supreme Court ruling allow for a deduction from current monthly income in the means test based upon the fact that the income will not be available, potentially, to fund a 3-5-year Chapter 13 payment plan. However, this will decrease the amount of your necessary monthly Chapter 13 plan payment and will not increase the odds of filing a 36-month plan rather than a 60-month plan as the means test itself looks backward at the 6 months prior to filing to make that calculation. Regardless of the means test, Michigan unemployment benefits must also be disclosed as income on Schedule I of your Bankruptcy Petition, which captures generally your monthly average income as of the date of filing. If, as of that date, you are receive a Michigan unemployment benefit, it must be disclosed there. If you have an excess of net income after monthly expenses on a separate Schedule are deducted, you may be required to file a Chapter 13 bankruptcy even if you are passing the means test. However, again, if the Michigan unemployment benefit will expire a few months after filing your Chapter 7 bankruptcy, this will likely not be the case.
Michigan Unemployment Benefits and Bankruptcy: The Right to Receive an Unemployment Benefit as an Asset
The right to receive Michigan unemployment benefits is one your "personal assets" that must be listed and disclosed and valued in either your Chapter 7 or Chapter 13 bankruptcy, right along with your automobile, jewelry, gun collection, or other personal property. No property is liquidated at all in a Chapter 13 bankruptcy, but, in a Chapter 7 bankruptcy, an individual known as the Chapter 7 Trustee does have the ability to seize and liquidate for the benefit of your creditors, whose claims against you are otherwise to be discharged completely by the bankruptcy, personal assets if they cannot be protected by your bankruptcy attorney in your petition. Assets and property are "protected" in Chapter 7 bankruptcy through the application in the bankruptcy petition itself "exemptions," which are pieces of the US Bankruptcy Code or Michigan statute which allow certain types of property up to certain dollar value limits to be removed from the legal estate containing all of your assets that is automatically created upon the filing of a bankruptcy petition. In the vast majority of Chapter 7 bankruptcy cases, no property is liquidated at all because the exemptions available to protect your property are generally sufficient to protect 100% of what the average person owns in an average household, once the property is valued in fair-market (garage-sale-level) value. The exemptions available to protect the right to receive a Michigan unemployment benefit in particular are large and, depending upon the nature of the claim for the payment, potentially totally un-capped, meaning that the exemption has no dollar-value-limit at all. The US Congress has gone to great lengths to ensure, for the most part, that people who file bankruptcy do not lose lost future wages or retirement benefits. But the asset must still be listed. And valued. And the Chapter 7 Trustee will surely still take a good, hard look at the claim to ensure that the exemption protecting it is appropriate. An experienced bankruptcy attorney, such as attorney John M. Hilla of The Hilla Law Firm, PLLC, should be consulted prior to filing any bankruptcy case, no matter how "easy" it may appear to be. If you are a Michigan resident considering filing for bankruptcy, please contact us at (866) 674-2317 or click the button below to schedule a free, initial consultation. Schedule a Free Consultation