Michigan Debt Relief: Your Guide to State Laws and Managing Debt
For years, when people talked about Michigan, the conversation inevitably turned to job loss and a struggling economy. Perhaps that reputation is not surprising for a state considered to be the center of the American automotive industry, which has faced multiple crises over recent decades, including recessions, labor disputes, stiff competition from foreign automakers and tariffs on aluminum and steel.
However, today there is a lot of optimism in the Great Lake State. According to a 2019 Economic Outlook Survey sponsored by an association of Michigan chambers of commerce and industry groups, 68% of Michigan business owners believe the state has a “strong, vibrant economy,” and 81% say it’s a “great state for raising a family.”
Despite rising optimism, Michigan residents still carry a fair amount of debt, albeit lower amounts than usual compared to the rest of the nation (see table below). From credit cards to student loans, auto loans and mortgages, let’s take a look at debt in Michigan. We’ll explore the laws surrounding debt collection in Michigan, as well as how Michigan residents can tackle their debt.
- Debt in Michigan: At a glance
- Debt collection in Michigan
- Michigan debt relief programs
- Payday lending laws in Michigan
- Tips to tackle debt in Michigan
- Filing for bankruptcy in Michigan
- The bottom line
Debt in Michigan: At a glance
|Type||Per capita balance, 2018||Rank out of 50 states*||U.S. per capita balance|
|Credit card debt||$2,710||38||$3,220|
|Student loan debt||$5,800||16||$5,390|
|*No. 1 is highest
**First-lien debt only
Source: Federal Reserve Bank of New York, March 2019
Debt collection in Michigan
For Michigan residents who run into financial difficulties, the state has numerous laws to protect consumers. Here is an overview of collection laws and exemptions in Michigan.
Fair Debt Collection Practices Act
The Fair Debt Collection Practices Act (FDCPA) is a federal law that makes it illegal for third-party debt collectors to use abusive, unfair or deceptive practices when they collect debts.
Under the FDCPA:
- Collectors may not call you before 8 a.m. or after 9 p.m., unless you allow them to do so.
- Collectors may not call you at work, if you or your employer inform them that such calls are prohibited.
- You can send collectors a request in writing to stop contacting you completely. After you send this letter, the collector can only call you to confirm it will not contact you again, or to inform you that it intends to take legal action against you.
- Collectors may not discuss your debt with anyone other than you, your spouse or an attorney representing you. However, a collector can contact other people to get your address and phone number and to find out where you work.
- Collectors have to send you a written “validation notice” within five days of their first contact with you. This notice must include how much you owe, your creditor’s name and instructions for what to do if you believe you don’t owe the debt.
- Collectors cannot harass you by threatening violence or harm, using obscene or profane language or using the phone to annoy you.
- Collectors can’t lie by misrepresenting the amount you owe, claiming to be an attorney or government employee or falsely claiming you’ll be arrested.
- Lastly, they can’t engage in unfair practices such as collecting interest and fees on top of the amount you owe (unless allowed by the contract or state law), depositing a postdated check early, or threatening to take your property unless it can be done legally.
In Michigan, the Collection Practices Act extends these laws to apply directly to creditors and lenders in the state. So while in some states the above requirements apply only to third-party collection agencies, in Michigan, banks, attorneys and other creditors are also prohibited from using misleading or deceptive collection practices or harassing borrowers.
Exemptions protect a certain amount of your property from being threatened by a judgment. Some states exempt all of the equity in your home, no matter how valuable the home is, and set limits on other classes of property. Others offer little or no protection.
The following limits apply in Michigan:
- Homestead exemption. In Michigan, the homestead exemption is $3,500.
- Vehicle exemption. In Michigan, the vehicle exemption is $1,000 and only applies if the vehicle is necessary for the person to work or carry on their trade or business.
Wage garnishment is when a percentage of your income is withheld by your employer’s payroll department by court order and sent to your creditor to pay a debt. Federal law limits the percentage of wages that can be garnished. Some states impose additional stricter limits, but Michigan has not done so.
In any given workweek, an employer in Michigan can withhold the lesser of:
- 25% of your disposable earnings, or
- The amount by which your weekly disposable earnings exceed 30 times the federal hourly minimum wage (currently $7.25 per hour)
Disposable earnings are the wages left after your employer withholds deductions required by law, such as federal, state and local income and payroll taxes.
Responding to collection letters
If you receive a collection call or letter, your first step should be to ensure that it is not a scam and the debt legitimately belongs to you.
To a validate a debt, send a letter requesting the following information:
- Who you’re dealing with (the individual’s name)
- The collection company’s name, address and phone number
- The name of the original creditor
- The amount you owe
- How you can dispute the debt or verify the debt is yours
If you need to request more information from the debt collector, dispute the debt, request that the collector stop calling you or request that they contact you only through your attorney, the Consumer Financial Protection Bureau (CFPB) has several sample letters you can use.
If the debt is yours, you may want to negotiate with the debt collector, either on your own or with the help of an attorney, to settle the debt for less than the full amount owed and have the remaining balance forgiven.
If you have problems with the debt collector or want to report violations of the federal or state collection laws, you can report any problems you have to:
- Michigan Attorney General
- Consumer Protection Division
- PO Box 30213
- Lansing, MI 48909
- You can also call the attorney general’s office at 517-335-7599 or 877-765-8388, or fill out an online complaint form.
- You may also want to file complaints against debt collectors with the CFPB or the Federal Trade Commission (FTC).
Understanding Michigan’s statute of limitations
Many states have a statute of limitations on debt collections. This is a limit on the number of years a creditor has to take legal action to collect an unpaid debt. If you haven’t made a payment in that long, the creditor loses its right to sue you to collect the money. However, the creditor can still try to collect the debt by calling or sending letters.
Here’s a look at the statute of limitations for different types of debt in Michigan:
|Michigan Statute of Limitations on Debt|
|Mortgage debt||6 years|
|Medical debt||6 years|
|Credit card||6 years|
|Auto loan debt||4 years|
|State tax debt||6 years|
Once the statute of limitations has passed, the debt becomes “time-barred,” and the creditor cannot sue you to collect it. However, the clock can be reset. The clock starts ticking when you fail to make a payment and it can be reset if you make a partial payment.
For that reason, if you work out a settlement with the creditor to pay less than the full amount owed, get a signed letter from the creditor before you make a payment acknowledging the debt is being settled and the amount you pay will release you from further obligation. Without that proof, the creditor may treat your payment as a partial payment, reset the statute of limitations and sue you to collect the remaining balance.
Michigan debt relief programs
If you’re having trouble managing debt on your own, you may benefit from working with a debt relief organization that can help you create a budget, negotiate lower interest rates and monthly payments or refinance your debt.
However, the debt relief industry is rife with abuse, even in companies that have “nonprofit” status. Here are some reputable resources in Michigan:
- Michigan State University Extension has certified housing and money management counselors who provide financial education programs and resources for Michigan residents.
- The Michigan Department of Insurance and Financial Services (DIFS) maintains a database of debt management companies that are licensed to do business in Michigan.
- The U.S. Department of Justice maintains a directory of approved credit counseling agencies.
Before working with any credit counselor or debt management company, consider contacting the Michigan Attorney General’s office to find out whether they have any consumer complaints on file for that organization.
Some common debt relief scams to look out for include:
- Promises of a “quick fix” or settling your debt for pennies on the dollar
- Sales people claiming they can get special deals
- Require upfront fees before they help settle any debts
- Claim you can’t get your money out of escrow
- High commissions
- Advertisements of “new government programs” for bailing you out of debt.
In addition to the state-specific resources mentioned above, the National Foundation for Credit Counseling is a good resource for connecting with a certified credit counselor.
Payday lending laws in Michigan
Payday loans give a consumer a small short-term, high-interest loan in exchange for immediate cash. People often turn to payday loans to see them through short-term financial difficulties but can end up spending months or even years paying back big fees for small loans, driving them deeper into debt.
Michigan has specific statutes covering payday lending:
- Maximum loan amount: $600
- Maximum loan term: Up to 31 days
- Finance charges: Michigan limits the service fees for payday loans based on the amount of the loan. The lender may charge up to 15% on the first $100, 14% on the second $100, 13% on the third $100, 12% on the fourth $100 and 11% on the fifth and sixth $100.
Additionally, a payday lender can have only one outstanding payday loan per customer. A customer may take out a second loan with a different payday lender but can only have two outstanding payday loans at any given time. The state maintains an electronic database of outstanding payday loans that lenders must check before issuing a new loan.
Tips to tackle debt in Michigan
For many consumers, paying off debt involves making some tough choices. You may need to scale back on your spending or lifestyle choices, stick to a budget or look for ways to make additional income that can be put toward paying off debt.
Here are some other strategies you might consider.
Consolidate your debt
Consolidating your debts may be a good idea of you have a number of high-interest credit cards and personal loans that can be consolidated at a lower interest rate. Debt consolidation involves combining all of your debts into a single monthly payment with a debt consolidation loan.
Debt consolidation loans can simplify your finances by eliminating the need to juggle multiple creditors, payments and due dates each month. However, if you have poor credit, you may have a tough time getting approved for a debt consolidation loan with an annual percentage rate (APR) lower than the interest rates being charged on your existing debt.
Refinancing your auto or mortgage debt involves paying off your current loan by taking out a new one. If you can refinance to a lower interest rate, you may be able to save money and reduce your monthly payment, freeing up more room in your budget to pay off other high-interest debts.
However, refinancing often means adding additional years to your loan. For example, if you are 10 years into a 30-year mortgage and you refinance into a new 30-year mortgage, you’re adding another 10 years of mortgage payments. You might end up paying more in the long term, so run the numbers before refinancing as a debt-elimination strategy.
You can also consider refinancing your student loan debt to help simplify your payments or secure a lower rate. If you’re swapping federal student loan debt for a private refinance loan, just be aware that you’re forfeiting access to federal flexible repayment plans and any forgiveness programs.
Use a balance transfer card
If the debts you want to consolidate are entirely made up of credit card debt, a balance transfer card may be a good option. Debt consolidation with a balance transfer credit card shifts your debt from one or more high-interest cards to a card with a low- or no-interest rate. You’ll need a good credit score to qualify for these offers, though.
If you can shift your debt to a 0% APR introductory rate and pay off the balance within the introductory period, you can save a significant amount of money and pay down debt faster because more of your payment will go toward the principal. But if you can’t pay it off before the promotional period ends (usually within 12 to 21 months), you’ll most likely end up paying more than you otherwise would have in the long run, so be sure to consider this before committing to one of these cards.
Most balance transfer cards also charge a balance transfer fee, usually about 3% of the transfer amount. Compare what you would pay at your current APR to what you would pay for the balance transfer fee before going this route.
Filing for bankruptcy in Michigan
If you have debts you cannot pay and have exhausted your other options for tackling debt, you might need to consider filing for bankruptcy. Bankruptcy can give you a fresh start and stop the collection calls, but it will negatively affect your credit.
Some people considering bankruptcy worry that they may lose all of their property, but federal and state laws exempt certain property from bankruptcy. In Michigan, those exemptions include:
- Up to $3,000 in household goods, furniture, utensils, books, appliances and jewelry (not to exceed a value of $450 per item)
- Up to $2,000 value in crops, farm animals and feed for farm animals
- Household pets worth up to $500
- An interest in one motor vehicle worth up to $2,775
- Computer and accessories worth up to $500
- Work tools worth up to $2,000
- All individual retirement accounts, including Roth IRAs
Individuals have two options for declaring bankruptcy:
- Chapter 7 bankruptcy involves selling your assets to pay off creditors. To qualify for Chapter 7, you must pass a means test, which is done using an official form. Completing the test is complicated, so it’s best done with the help of an experienced bankruptcy attorney.
- Chapter 13 bankruptcy allows you to keep some of your assets and pay all or part of your debts through a structured repayment plan. To qualify for Chapter 13, you must have a regular income and get help setting up a plan to pay off your creditors over a three- to five-year period.
Bankruptcy remains on your credit report for seven to 10 years and may make it more challenging for you to buy a home, finance a car or get a personal loan.
You can find out more about filing for bankruptcy in Michigan, including forms, rules and filing fees, from the United States Bankruptcy Court, Eastern District of Michigan.
The bottom line
Michigan residents may face issues in dealing with their debt for a number of reasons, from job loss to medical emergencies and even living beyond their means. If you’re having trouble dealing with debt, it’s important to know what debt collectors can and can’t do and where you can find reliable, reputable help.
Hopefully, the information above will help you protect yourself from debt relief scams and get you on the path to financial freedom.
The information in this article is accurate as of the date of publishing.