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Changing Exemption Laws Make Filing Bankruptcy Easier for Struggling Mainers

On Behalf of | Oct 12, 2021 | Firm News |

On October 18, 2021, changes will take place in Maine’s exemption statute will make it possible for more Maine people who are dealing with debt to file a simple Chapter 7 bankruptcy.  In essence, the value of many exemptions to personal and residential property is increasing, allowing people to protect more from creditors should they be sued or decide to file bankruptcy.

Maine’s exemption statute, 14 M.R.S. §4422, addresses several categories of property and the value up to which that property is shielded from collection by creditors.  Although some of the amounts were increased over the years, the vast majority of exemption values remained stagnant for 10, 20 or even 30 years.

When filing a chapter 7 bankruptcy, a person must list all assets owned including the home, cars, motorcycles, boats, furniture, household goods, jewelry, investments, business property, cash on hand and money in the bank.  Assets having value below the exemption amount are protected from collection, assets with value above the exemption are subject to turnover to the bankruptcy trustee (who can sell them and distribute money to the creditors).

When the new exemption law takes effect, persons who file a Chapter 7 bankruptcy will be able to protect more equity in their homes and cars and have more money in the bank.  In addition, the exemption values of many commonly owned assets have increased as well.

Homeowners under 60 years old may now protect up to $80,000.00 in equity individually and up to $160,000.00 in a joint filing with their spouses (previous amounts: $47,500.00/$95,000.00).  For those over 60 or who are disabled the amount rises to $160,000.00 and $240,000.00 per couple (previous amounts: $95,000.00 and $190,000.00).  Furthermore, a surviving joint owner who is either 60 years old or whose spouse was at least 67 years old at death will be allowed to keep the $240,000.00 exemption.

The law also allows you to utilize up to $10,500.00 in any unused residence exemption to supplement exemptions to personal property, tools of the trade and personal injury settlements (up from $6,000.00).

The motor vehicle exemption increases from $7,500.00 to $10,000.00 in one vehicle.  A couple may each exempt one separate vehicle up to $10,000.00 or combine the exemption to $20,000.00 on one vehicle if they are joint owners.

In addition, a brand-new exemption was created that would allow each debtor to have up to $3,000.00 in cash or in deposit accounts at the time of filing.   Previously, the only way to “protect” cash was to spend down to below $400.00 per debtor on the day of filing, which was the amount of the previous “wild card” exemption.  Happily, the “wild card” exemption has increased to $500.00.

Personal property, including household items, clothes, appliances, books, animals, crops or musical instruments are protected up to $500.00 each (that’s right–$500.00 per fork, $500.00 per tee shirt!).

Jewelry is protected up to $1,000.00 in total (not each item), up from $750.00. However, in the only “rollback” of an exemption, the combined value of one’s engagement and wedding ring may not exceed $4,000.00.  This exemption used to be unlimited (yes, you could still have the Elizabeth Taylor rock and file bankruptcy!).

Self-employed persons may now exempt up to $9,500.00 in their tools of the trade, up from $5,000.00.

Up to $5,000.00 in the cash value of life insurance can now be protected, which is an increase of $1,000.00 from the previous value.

If you happen to have a personal injury case when you file for bankruptcy, you are allowed to keep up to $20,000.00 in net proceeds, which represents a $7,500.00 increase from the previous law.

The updated exemption statute certainly improves the plight of consumer debtors, many of whom worry about their property being taken from them if they file bankruptcy.  While creditors may not be happy about the reduction of available assets to collect for debts, the increased values of these exemptions better reflect the increased values of some of life’s basic necessities and cherished possessions over the years, allowing more “honest but unfortunate debtors” to obtain the fresh economic start offered by our bankruptcy statues.

Richard Regan, Esq.
Regan Law, LLC