Maine Bankruptcy Exemptions and Law
COVID-19 Changes: Like most federal courts, Maine's bankruptcy courts have sharply limited operations during the coronavirus pandemic. For all intents and purposes, courthouses are closed. Debtors may call the clerk in advance to arrange pickup if they need to file documents. There's no guarantee that the clerk will process the document or payment that day. Live hearings are sometimes available, especially if witness credibility is an issue. But for the most part, judges conduct all hearings via telephone. Trustees (people who manage cases for judges) also conduct most meetings and other activities via telephone. Furthermore, pro se debtors must normally make all payments via mail using certified funds.
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Families in Maine who face significant debt basically have two choices. They can wait and hope things will improve, further harming their credit scores. Or, they can partner with a bankruptcy lawyer and take control of their own financial profiles. Keep reading to see how bankruptcy can stop creditor harassment (including adverse actions like foreclosure), protect your property, and give you a fresh start.
The Constitution gave Congress the right to consolidate bankruptcy laws in the United States. After a number of false starts, the modern Bankruptcy Code finally emerged in the early twentieth century.
In keeping with the spirit of a federal-state balance, the Bankruptcy Code allows states to implement their own property exemptions (property protections). Maine has gone this route. Most of the Pine Tree State's property exemptions are located in Title 14 of the Main Revised Statutes. Some major property exemptions, and how a Maine bankruptcy lawyer can use them in court, are examined below.
For now, let's look at the basic structure of a bankruptcy and your debt relief options under federal law.
Among other things, banks can legally foreclose on home loans after one missed payment. Making matters worse, during the 2010s, the Supreme Court and Consumer Financial Protection Bureau eliminated some key consumer debt protections. So, when it comes to debt collection, many creditors are more aggressive than ever. But there are safeguards in place to help individuals who file for bankruptcy. These include the automatic stay and the bankruptcy debt discharge.
If aggressive debt collection is the disease, bankruptcy's automatic stay is the cure. Section 362 of the Bankruptcy Code instantly stops adverse actions like:
- Creditor lawsuits
- Wage garnishment
- Collection lawsuits
Simply filing the petition is not enough. The automatic stay does not apply unless a creditor receives actual notice. This requirement is a bit tricky in many areas. Home foreclosure is a good example.
Assume Robert fell a few payments behind on his house when he lost his job. At roughly the same time, without notifying Robert of the sale, Bank A sold his house note to Bank B. Bank B then adds Robert's house to the sheriff's foreclosure sale list. If Robert files a pro se bankruptcy, he could very well lose his house because he will probably only send notice to Bank A, who he believes is the only creditor.
This is one of the reasons having a bankruptcy attorney is a good idea — they know to check the deed records and would have discovered Bank B's identity. Furthermore, attorneys know that, in pending foreclosure sales, the sheriff or other auctioneer must receive actual notice.
The automatic stay is usually the first thing that happens in a bankruptcy. Debt discharge (debt forgiveness) is usually the last thing. This discharge usually applies to unsecured obligations, such as:
- Medical bills
- Credit cards
- Revolving charge accounts
- Payday loans
- Signature loans
Typically, these debts eat up hundreds of dollars a month. Imagine what your family can do with that extra money.
There are some strings attached. Bankruptcy judges can eliminate the legal obligation to pay a certain debt. But a judge cannot eliminate the collateral consequences of debt. So, if the IRS filed a lien against Paul before he filed bankruptcy, the lien remains even if the judge discharges the tax debt. A bankruptcy lawyer must deal with the lien separately.
Income taxes are priority unsecured debts, which are only dischargeable in some situations. Other priority unsecured debts include student loans and FSOs (family support obligations), like alimony and child support.
Kinds of Consumer Bankruptcy
In most jurisdictions, there are two formal kinds of consumer bankruptcy and one informal kind: Chapter 7, Chapter 13, and "Chapter 20."
If your family struggles with credit card debt and other kinds of unsecured obligations, Chapter 7 can offer a way out. These matters are often straightforward, especially if the debtor had few or no assets. About six weeks after the debtor files a petition and schedules, the trustee verifies the debtor's identity and looks for any evidence of fraud.
You have a duty to assist the trustee in these areas, mostly by providing documents, like a government-issued photo ID and recent tax returns. Trustees often request other identification and financial documents as well.
Assuming everything goes well at a brief meeting, most Chapter 7 bankruptcy judges sign discharge orders without requiring hearings. From start to finish, the entire process often takes less than six months.
Chapter 13 is a little more complex. Debtors still file petitions and schedules, and trustees still look for fraud and verify identities.
Additionally, the trustee sets the debtor up on a monthly repayment plan. The protected repayment period usually lasts three or five years, largely depending on your income. Since the automatic stay remains in effect, creditors must accept this income-based repayment plan. They cannot pressure Chapter 13 bankruptcy debtors to pay more money or pay it faster. Banks get what they get and they don't throw a fit.
Frequently, the monthly debt consolidation payment is roughly the size of a mortgage or rent payment. If this payment is or becomes a problem, a bankruptcy attorney can usually convert the case to Chapter 7, modify the payment plan amount, or obtain a hardship discharge.
An informal "Chapter 20" is available in most jurisdictions. To see how one works, let's return to Paul's back taxes and change the facts a bit.
Assume Paul files Chapter 7, hoping to take care of some past-due income taxes. But he does not quite meet the requirements, so the judge does not discharge them. At this point, Paul could throw himself on the mercy of the IRS and hope he gets a payment plan.
Or, Paul could file Chapter 13 and take advantage of the protected repayment plan. Paul cannot get a Chapter 13 discharge this soon, but he doesn't need a discharge. He just got one when the judge closed his Chapter 7. Paul simply needs time to repay the IRS.
In case you are wondering, you are eligible for a subsequent discharge. Bankruptcy is not a once-in-a-lifetime chance, because most financial storms come more than once. The waiting period is usually between five and ten years, depending on a number of factors.
Just like there are formal and informal kinds of bankruptcy, there are also formal and informal eligibility requirements.
Back in the day, pretty much everyone qualified for bankruptcy, no questions asked. Bankruptcy reforms in 2005 set up some hoops debtors must jump through.
All debtors must take two financial management classes. These classes are usually available online. That's the easy part. Now comes the hard part.
Chapter 7's immediate debt discharge is a radical form of relief. To help ensure that debtors need such relief, Congress enacted the means test. If your income is above the annual average for that area, you cannot file Chapter 7. In Maine, as of November 1, 2020, this amount was $91,651 for a family of four. If you are above this line, don't fret. You may still be eligible for Chapter 7 based on your actual income and expenses. Furthermore, a bankruptcy lawyer can offer other debt-relief options.
A debt ceiling applies in Chapter 13. These debtors cannot have more than $1.3 million in secured obligations and $400,000 in unsecured debt.
Bankruptcy's informal requirements, which often vary among individual trustees, usually involve the income/expense declarations in Schedules I and J.
From a practical standpoint, debtors need radical Chapter 7 relief if they cannot afford to pay their debts. So, if their income exceeds their expenses, they can afford to pay their debts, at least on paper. Therefore, in these cases, trustees often ask debtors if they have considered other debt relief options.
Chapter 13 bankruptcies often have the opposite informal requirement. These debtors must have enough disposable income to fund a debt consolidation payment. If Schedule I/J does not show a sufficient surplus, the trustee usually asks where the debtor plans to get the money.
When you file for consumer bankruptcy, you get to keep some, if not all, of your property. What you get to keep is listed in Maine's bankruptcy laws.
If you have lived in the Pine Tree State for at least two years, you may claim Maine's property exemptions. The Automatic Stay applies to creditors, but not the trustee. However, the trustee cannot touch your key assets, including:
- House: Maine's homestead exemption protects up to $47,500 of home equity. In some cases, such as minors living in the house or a disabled petitioner, the home equity exemption doubles to $90,000. Unless you have paid off more than half the loan, you probably have almost no equity. Home loans are amortized, so you pay interest before you reduce the UPB (Unpaid Principal Balance).
- Car: $7,500 of motor vehicle equity is protected under Maine law. Most people get to keep their cars because if you drive a new car, you probably have no equity in it. If you drive a used car, it probably has little financial value, especially if it needs any work.
- Personal property: Most clothes, electronics, furniture, and other household good are exempt. Wood, heating oil, and other types of fuel are also exempt. Farmers and commercial fishers can usually keep their equipment as well. Sometimes, a value cap applies. But most used personal items have almost no as-is cash value. Joe's $2,000 laptop might fetch about $200 in a garage sale, for example.
- Public support and benefits: FSOs reasonably necessary for support are exempt. The law also protects tax credits, like the EIC tax credit. Public benefits, like workers' compensation and Social Security benefits, are exempt as well.
- Damages and insurance payments: Personal injury awards up to $12,500 are normally exempt. Life insurance benefits and policy equity are normally exempt as well.
- Retirement accounts: Nest egg accounts, like IRAs and 401(k)s, are usually exempt up to $1 million. Defined benefit accounts, like pension accounts, are normally 100% exempt. Tax-deferred savings plans, such as prepaid college tuition plans, are usually exempt as well.
- Wildcard: Debtors may use this exemption to protect up to $6,000 of otherwise nonexempt property. Some limitations apply. If you use the entire homestead exemption, only a limited wildcard exemption is available. Additionally, you cannot apply this exemption to real estate and some other kinds of property.
Maine filers may also use the federal nonbankruptcy exemptions. These protections include broader retirement account exemptions, as well as 75% of current wages.
These property protections are usually concealed in various provisions of federal or state law. The best interests of creditors rule, which is in the Bankruptcy Code, is a good example.
Assume Lorraine has two dozen creditors when she files bankruptcy. She owns a motorcycle that the formal exemptions do not protect. The trustee estimates it is worth about $600. Sales cost, mostly storage and repair costs, will be about $500. The trustee must pay these expenses.
In this situation, a seizure and sale would not be in the creditors' best interests. At best, they would get about $4 each. Furthermore, if the trustee must cut the price to sell the bike, the creditors would most likely owe money.
How do I start bankruptcy in Maine?
Since the bankruptcy forms are available here, many people think a Do-It-Yourself (DIY) bankruptcy is a good idea. Indeed, this approach saves money, at least in the short term. But DIY filers are unaware of the many loopholes and informal requirements that apply in bankruptcy cases. We've only touched on a few of them.
Furthermore, if the case goes sideways, DIY filers are completely on their own. Innocent errors on forms legally constitute bankruptcy fraud. And if the trustee files a motion for turnover or other action, DIY filers have no one to help them.
A partnership with a Maine bankruptcy lawyer is an investment that always pays off. Only an attorney can give you legal advice, handle all the complex paperwork, and stand up for you in court.
Where do I file bankruptcy in Maine?
There are bankruptcy courts in Bangor and Portland. Maine residents may file in either location. DIY filers must conduct most business at the courthouse in person. A bankruptcy lawyer can use the Electronic Case Filing system to file documents, pay fees, and do other things from almost anywhere.
How much does bankruptcy cost in Maine?
Bankruptcy filing fees, which are usually about $350, vary, mostly according to the type of bankruptcy. Occasionally, payment plans and fee waivers are available. Professional fees vary as well, again mostly according to the type of bankruptcy. Payment plans are usually available. Many debtors include professional fees in the Chapter 13 debt consolidation payment. Sliding scales are also usually available.
What do I lose if I declare bankruptcy?
Most people lose nothing when they declare bankruptcy. Maine's property exemptions are very broad. Actually, you do lose something if you declare bankruptcy. You lose the obligation to repay oppressive debts.
What happens if I have to declare bankruptcy?
The answer depends on the type of bankruptcy you file. Chapter 7 eliminates most unsecured debts in as little as six months. Chapter 13 gives you up to five years to repay secured debt delinquency, like past-due mortgage payment, with a monthly, income-based debt consolidation payment.
How much debt do I have to have to declare bankruptcy?
There are no debt requirements in Chapter 7. A debt ceiling applies in Chapter 13, as outlined above. As for minimum debt amounts, if you are more than one month behind on a secured debt, you should consider Chapter 13. If credit cards and other unsecured debts eat up more than 10% of your income, you should consider Chapter 7.
Connect With a Dedicated Attorney
If you are ready to take control of your finances and protect your property, reach out to an experienced Maine bankruptcy lawyer today.
Note: State laws are always subject to change through the passage of new legislation, rulings in the higher courts (including federal decisions), ballot initiatives, and other means. While we strive to provide the most current information available, please consult an attorney or conduct your own legal research to verify the state law(s) you are researching.