Background: The monetary threshold for most property types exempt from claims of creditors in bankruptcy proceedings has not been updated since the early 1960’s. The purpose of the exemptions is to provide a debtor enough assets and means to rebuild his or her life. A legislative task force found in 2003 that the current exemption thresholds were inadequate.

Description of Bill: The bill adds two sections to the Revised Judicature Act of 1961. Section 5451 exempts certain property from bankruptcy proceedings, including family pictures, individual retirement accounts, and right or interest in certain pension, profit-sharing, stock bonus, or other qualified plans. Thresholds for crops, farm animals and feed for farm animals; household goods; pets, motor vehicles; computers; tools, implements, materials or other things needed to carry on a profession or occupation; and credit union accounts were updated. Michigan citizens could continue to choose to use the federal exemptions in lieu of the state exemptions. The bill requires the State Treasurer to adjust the dollar amount thresholds every three years to reflect the cumulative change in the Consumer Price Index. A new Section 6023a exempts certain property held jointly by a husband and wife as a tenancy from a judgment entered against only one spouse.

Summary of Arguments

Pro: The exemptions in Michigan law related to bankruptcies have not been updated in many years. As a result, debtors often have insufficient assets and resources to rebuild their lives and may require public assistance. The bill would allow the bankruptcy laws to work as intended.

Con: Although adjustments to Michigan’s bankruptcy exemptions are needed, the bill appears to create confusion by not amending or repealing Section 6023 of the act. This section contains the current exemptions. The original House-introduced bill did amend Section 6023.

Fiscal/Economic Impact

(a) Department

Budgetary: There is no direct budgetary impact on the department.

Revenue: The bill will have no impact on department revenues.

Comments:

(b)State of Michigan

Budgetary: There is no direct budgetary impact on the state.

Revenue: The bill will have no impact on state revenues.

Comments:

(c)Local Government

Comments:

Other State Departments:
The bill requires the State Treasurer to adjust the dollar amount thresholds every three years to reflect the cumulative change in the Consumer Price Index.

Any Other Pertinent Information:
The bill is part of a bi-partisan package of 6 bankruptcy reform bills. The other bills, House Bills 5764-66 and 5780-1, have not moved.

Administrative Rules Impact:
There is no rulemaking authority related to the bill.