What is Exempt?

IMPORTANT NOTE: The exemptions from debt collection discussed on this page apply to private debts like credit cards, medical bills, and bank loans. If you have child support debt, or if you owe money to the government for taxes or a student loan, different rules apply.

What does it mean to be exempt from debt collection?

Under state and federal law, certain kinds of income and property are classified as exempt from debt collection. A creditor or debt collector cannot force you to use exempt income or property to pay a debt.

What kinds of benefits are exempt from debt collection?

• Public Assistance (PA)
• Supplemental Security Income (SSI)
• Social Security
• Social Security Disability (SSD)
• Veterans benefits (VA)
• Child Support (not specifically mentioned in exemption statute)
• Spousal Maintenance (not specifically mentioned in exemption statute)
• Workers Compensation
• Unemployment Insurance
• Railroad Retirement benefits
• Black Lung benefits

What kinds of retirement funds are exempt from debt collection?

• Public and private pensions
• Retirement saving accounts like 401(k), 403(b), and Individual Retirement Accounts (IRA)

How much earned income is exempt from debt collection?

As a general rule, a judgment creditor may not take more than 25% of your earnings.

Can the Court officer seize my car to pay a private debt?

Yes, and many will do so, sometimes even If you still owe money on the car. They do this knowing that most people will come up with cash to get your car back.

Can a debt collector take my exempt income or property if it has a judgment against me?

No. If you have exempt income or property, a debt collector cannot take it to pay a debt, even if it has a judgment against you. That being said, judgments have other negative consequences, and it is best to avoid them if possible.

What does it mean to be “judgment proof”?

If your income consists only of the exempt funds mentioned above, and you have no assets, some people would call you “judgment proof.” This means that your creditors cannot collect money from you — even if they have a judgment — because all of your income and property is exempt.

It is important to understand that a court can still enter a judgment against you, even if you are considered “judgment proof.” If that happens, you will not have to pay the judgment so long as your income remains exempt from collection. However, if your situation changes (for example, if you return to paid employment or win the lottery) you will have to pay the judgment from your non-exempt funds.

Is my personal property exempt?

Only to the extent as provided by constitution or statute, Mich. Const. art. X, § 3; Mich.
Comp. Laws § 600.6023.

Household goods: $1000 household furniture, utensils, books, and
appliances;
six months of provisions and fuel; certain farm animals;
six months supply of feed; tools of trade;
certain disability benefits and retirement accounts.
Motor vehicles: Not specified.
Tools of trade: $1000 tools, materials, stock, vehicle for principal
business or profession; for householder, certain livestock and feed.
Clothing and jewelry: All clothing.
Miscellaneous and wildcard: All family pictures; all arms required
by law to be kept; a pew.

How can I keep my exempt income safe from debt collection?

First, if a debt collector contacts you about a debt that you cannot or do not want to pay, you should send a cease letter instructing the debt collector not to contact you anymore and explaining that your income is exempt from debt collection. You should also file an affidavit of exempt income along with your last three bank statements showing that your income is exempt (ie federal social security, disability, workers compensation etc.) See my sample exempt income affidavit in my free forms.

NOTE: if your exempt income is garnished after you follow these steps than you should speak to a consumer attorney immediately as there are probably violations of state and federal law.

Is my exempt income safe in a bank account?

Even if a debt collector has obtained a judgment against you, your exempt income is still protected even after it has been deposited in a bank account. DO NOT CO-MINGLE non exempt funds as the creditor will argue he or she did nothing wrong by garnishing your bank account.

The best way to protect your exempt benefits is to sign up for direct deposit and keep your bank account with exempt funds only. If your bank account consists of only exempt funds and has been frozen due to a court judgment, call the debt collector and ask that your account be released immediately. Exempt income is always protected from debt collection, even if there is a judgment. If you need help getting your exempt funds released, call my office at 810 653-3300.

Is my tax refund exempt from debt collection?

No, tax refunds are not exempt from debt collection.