Maine Homestead Laws

Filing for bankruptcy is a life-changing event, but it doesn’t always mean that you’ll lose your home. While it’s a possibility, programs like Maine’s homestead exemption can help keep you in your house.

In general, the homestead exemption protects some or all of the equity you have in your home. Depending on the exemption amount, it can help you stay in your primary residence. Under a Chapter 7 bankruptcy, the trustee may sell your house to pay your creditors. Even in a Chapter 13, your home may be subject to sale if you cannot afford your monthly payments.

This article examines and explains the homestead exemption laws in the state of Maine. It also discusses how to claim the homestead exemption and use it to protect your primary residence. If you’re a Maine resident and are considering bankruptcy, it’s a good idea to speak with a local bankruptcy attorney before filing. They’ll review your case and help you determine if you can protect your home in bankruptcy.

Overview of the Homestead Exemption

The purpose of the homestead exemption is to ensure that people who file bankruptcy won’t end up homeless once the court discharges their case. While some homeowners can protect their house completely, others may learn that their home is still at risk of sale.

The homestead exemption doesn’t protect your real property per se. It covers your equity in the property. If you bought a house six months before you file bankruptcy, your equity in the house may be close to zero. The same is true if you took out a home equity line of credit shortly before filing your Chapter 7 bankruptcy case.

If you have a lot of equity in your home, your bankruptcy trustee and creditors will likely view it as a possible liquid asset. The more equity you have, the more your creditors will want the trustee to sell the property and use the proceeds to pay them.

Here’s an example: You have a home with a total current value of $300,000. Over the years, you’ve accrued $200,000 in equity. Depending on where you live, the homestead exemption may be much lower than the amount of equity. If it’s only $30,000, the rest of your equity ($170,000) will be at risk. The trustee may decide to sell the property for $300,000, pay off your creditors, and give you whatever is left after they pay your mortgage in full. We’ll examine exactly how much protection to expect from Maine later in this article.

There are important steps that must be taken during a bankruptcy, such as declaring your intent to claim the homestead exemption when you file. Unless you’re well-versed in bankruptcy codes, consider speaking with a Maine bankruptcy attorney before filing your case.

Homestead Exemption in Maine

Like most other states, Maine offers debtors certain exemptions when they file bankruptcy. One of the most important exemptions is the homestead exemption. In some states, debtors can choose between their state bankruptcy exemptions and the federal exemptions.

Maine is an “opt-out” state, which means that debtors can only use the Maine homestead exemption. This is preferable, as the homestead exemption amount in Maine is much higher than the federal exemption.

Maine Homestead Exemption Limits

According to M.R.S. Title 14 Section 4422, the homestead exemption for an individual who files bankruptcy in the State of Maine is $80,000. This amount increases to $160,000 for debtors with minor dependents and for filers with a disability. A married couple who file a joint bankruptcy and own the property together may claim twice the homestead exemption limit.

The homestead exemption doesn’t protect you from secured creditors, such as your mortgage company. If you don’t make your mortgage payments on time, your lender can foreclose and sell your house at auction to pay off the loan, even if you claim the homestead exemption.

What Types of Property Are Eligible for the Homestead Exemption?

There are certain rules that apply when a debtor wishes to claim the homestead exemption. You won’t be able to apply the exemption if you don’t meet the eligibility requirements. This can leave your house vulnerable to sale.

Some of the requirements for Maine’s homestead exemption include:

• You must be a legal resident of Maine
• The homestead exemption only applies to residential property and can’t be used to protect real property you use solely for commercial purposes
• The exemption only extends to your primary residence, not a vacation home or an investment property
• You must be the owner at the time of filing
• The property can’t be part of a fraudulent conveyance

Under Maine law, a homestead can be any type of residential property that’s a permanent residence. This can include any of the following:

• Single-family home
• Condominium
• Residential property held in a revocable living trust
• Cooperative housing corporation
• Mobile home
• Burial plot for yourself or a dependent

You can apply the Maine homestead exemption to any proceeds from the sale of exempt real estate for up to 12 months, as long as you reinvest the proceeds into another residential property.

Homestead Exemption Vs. Homestead Property Tax Exemption

Although they sound similar, the homestead exemption is different from the homestead property tax exemption. The homestead exemption in bankruptcy helps protect the equity you have in your primary residence. For example, if you file Chapter 7 and have a good deal of equity in your home, there is a chance the trustee will sell your home to pay your creditors.

By applying your state homestead exemption, you protect some or all of the equity in your home. If the amount of equity you have in your house is less than the state homestead exemption limit ($80,000/$160,000), the trustee can’t sell your property.

Maine’s homestead property tax exemption is meant to reduce the assessed value of your home for tax purposes. The amount may change by tax year. This tax exemption helps reduce property owners’ overall tax bill.

Still Have Questions? Get Legal Advice From an Experienced Maine Bankruptcy Attorney

If you’re thinking about filing bankruptcy but worry that the court will force you to sell your home, consult a Maine bankruptcy attorney. An attorney will ensure your homestead exemption application is filed correctly and help you maximize your protection under the state and federal bankruptcy laws. Mistakes during a bankruptcy can cause nightmares, so consider working with an expert to make your financial recovery as swift and painless as possible.