Clients often believe they will lose their property by filing bankruptcy. It is true that the commencement of a bankruptcy case creates a bankruptcy estate comprised of all of a debtor’s legal and equitable interests in property under Section 541(a)(1) of the Bankruptcy Code. However, a debtor may exempt property from the bankruptcy estate. This is a technical way of stating that a debtor who files for bankruptcy gets to keep certain types of property subject to limitations on value through the application of exemptions.
Maine is a so-called opt-out state. This means that for bankruptcies filed in Maine a debtor must use Maine exemptions which are set out in Title 14 M.R.S.A. Section 4422. Exemptions or what a debtor gets to keep vary from state to state. Some states have very generous exemptions. For example, residents of Texas and Florida can have a home of unlimited value.
You may have heard news reports of debtors filing for bankruptcy in those states and getting to keep their multi-million dollar homes. This is true. Other states have very modest exemptions. Maine is somewhere in the middle compared to other states. It may not seem fair that what you get to keep for property depends on where you live but that is the way it is.
At least in Maine, the reality is that it doesn’t make that much of a difference because most personal bankruptcies are no-asset cases. In other words, Debtors who file bankruptcy in most cases get to keep all of their property through the application of exemptions. As in most areas of the law, there are exceptions to general rules.
If you file bankruptcy in Maine, you use Maine exemptions as long as you have resided in Maine for 730 days prior to the commencement of your case. If you have lived in another state during this time period, you use the exemptions from the state where you lived in the six months prior to the 730 days. This may seem a bit confusing and it is. Congress when it changed the bankruptcy laws in 2005 was concerned about debtors who would exemption shop.
For example, prior to the 2005 amendments to the Bankruptcy Code, a debtor living in a state with modest exemptions could move to a state with generous exemptions and protect more property. This was really about rich debtors who moving to Florida to keep a multi-million dollar home. Therefore, there may be times when a debtor files for bankruptcy in Maine and has not lived in the state for 730 days gets to use exemptions from another state.
Under Maine exemptions, a debtor can have a home with equity of $47,500. If the home is jointly owned, the exemption is doubled to $95,000. For example, debtors jointly own a home worth $200,000 and have a mortgage on the property for $105,000.
This leaves equity in the home of $95,000 which the debtors can protect if they file bankruptcy. The home must be the debtor’s principal residence. You cannot protect second homes, camps, or business real estate.
There are cases where the exemption is higher. If you have minor dependents living with you, the exemption is $95,000. If you are over 60 or disabled, the exemption is $95,000. For two debtors over 60, the exemption is, therefore, $190,000.
Maine allows an exemption in one vehicle of $5,000. For a married couple filing a joint petition, the exemption is $5,000 per debtor for a $10,000 combined exemption. This means that if you are married and file a joint petition you can have one vehicle worth $10,000 or two vehicles worth $5,000 each. Again, we are talking about equity in a vehicle, the value after subtracting the loan against it.
Other Maine exemptions are:
- Clothing, furniture, appliances, and similar items – $200 per item
- Jewelry – $750 per debtor. No limit on wedding and engagement rings
- Tools of the trade – $5,000
- Furnaces, stoves & fuel
- One cooking stove
- All furnaces or stoves used for heating
- All cooking and heating fuel not exceeding 10 cords of wood, 5 tons of coal, or 1,000 gallons of heating oil
- Food, produce, and animals subject to limitations
- Farm equipment subject to limitations
- Fishing boat subject to limitations
- Logging implements subject to limitations
- Whole life insurance not exceeding $4,000 in value
- Health aids
- Disability benefits and pensions including retirement plans subject to limitations
- Legal awards up to $12,500 for bodily injury plus loss of future earnings
- Wild card exemption of $400 per debtor
- Unused homestead exemption of $6,000 – subject to limitations
As stated above, most debtors who file for bankruptcy get to keep all of their property because they do not have any property that exceeds the applicable exemptions. Debtors can engage in bankruptcy planning with certain limitations in order to maximize the available exemptions and convert the non-exempt property into the exempt property prior to a bankruptcy filing.
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Contact us by e-mail or call us at 207-942-4697 or toll-free at 877-900-9857 to set up a free consultation. This article is not meant to be a substitute for legal advice from an attorney as every person’s situation is unique. It is important that you hire an attorney to help you avoid the many pitfalls that can occur in bankruptcy.