Maine bankruptcy laws: What are the Laws Regarding Bankruptcies in the State of Maine
Bankruptcy is the legal state of a person or an entity, initiated by a debtor and imposed by a court order. It is a legal term used when a person or business cannot repay their outstanding debts. Bankruptcy offers an individual or a business, an opportunity to start fresh. The creditors are offered repayment based on the individual or business assets available for liquidation. The laws of bankruptcy differ from one state to another.
How to file for Bankruptcy in Maine
In Maine, the bankruptcy filings are governed by the U.S. federal laws. The debtor is required to undergo credit counseling six months before filing for bankruptcy. The debtor also has to complete a financial management instructional course after filing for bankruptcy.
Credit counseling offers advice on how to manage finances and avoid bankruptcy. They also educate others on the root cause of debt and how to avoid it.
Income and expense analysis: Under the Bankruptcy act of 2005, the individual’s income and expense are analyzed to determine whether the debtor falls under Chapter 7 or Chapter 13. Based on the analysis, the debtor is asked to file for bankruptcy. This analysis of the income and expense is called ‘Means Test.’ To apply the means test, the filer’s average income six months before the filing is compared to the median income of Maine. This test helps determine under what chapter the debtor has to file for bankruptcy.
Gathering paperwork: The debtor is required to gather all the paperwork required to file for bankruptcy. The documents required include
- Proof of current income source
- Major financial transactions for the last two years
- Monthly living expenses
- Secured and unsecured debts
- Property including all assets and possessions
- Income tax returns
- Real estate property deeds
- Car titles
- Documents for any loans taken
Filing for bankruptcy: Before filing for bankruptcy, you have to determine which property is exempt from seizure under the Maine exemptions. You or your attorney will need to fill a two-page petition and several forms at the Maine District bankruptcy court. These forms are collectively called schedules and ask for your recent financial transactions and current financial status. Any attempt of fraud during the filing will jeopardize the outcome of the petition.
Chapter 7 bankruptcy
Chapter & bankruptcy lets you wipe out your debts and start fresh. It is a liquidation process where a trustee collects and sells all the assets except those which are exempt. The value of the assets from the sale is given to the debtor. The proceeds of the liquidation are distributed among the creditors. Part of the liquidation income is taken as a commission by the trustee.
Chapter 7 bankruptcy can eliminate most debts. But certain debts cannot be discharged such as alimony, child support, student loans, fraudulent debts, credit card debts, unsecured bills, and certain taxes. The debtor may voluntarily keep secured debts by signing a Reaffirmation Agreement. If the debtor keeps his/her car or house or any secured debt and reaffirms the debt, he/she cannot bankrupt that debt for eight years. The debtor will owe that debt and pay for it.
Chapter 13 bankruptcy
Under Chapter 13 bankruptcy, the debtor enters into a repayment agreement with the creditors, promising to pay off the debt from future income. Chapter 13 bankruptcy can be used to
- Stop interest from accruing on tax debt
- keep valuable non-exempt property
- makeup missed car or mortgage payments
- prevent a house foreclosure
- pay back taxes and more
The remaining dischargeable debts will be released at the end of the plan if the debtor sticks to the terms of the repayment agreement. The total amount paid to the creditors under the agreement must be at least as much as the amount they would receive if the debtor filed for Chapter 7 bankruptcy.
To file a Chapter 13 bankruptcy, the debtor must have a steady income and also have the disposable income to apply towards the payment plan — debtors who wish to retain their secured assets file for bankruptcy under Chapter 13.
Maine bankruptcy exemptions
The debtor can exempt or protect from creditors, certain properties while filing for bankruptcy. The debtor can keep the property after filing. The exemption limit applies to any equity that the debtor has in the property. If the property is secured by a loan, the debtor may choose to continue paying the loan and exempt the property from being bankrupt. The debtor may also use federal law exemptions while filing for bankruptcy.