Debt Relief

Maine Debt Relief: Your Guide to State Laws and Managing Debt

debt consolidation Maine

Maine’s debt picture is considerably better than many other states. In addition to its relatively low per-person credit card debt balance, the state’s per-capita balance is lower than the national average in every other category, as our analysis below shows.

While that may mean that the average Mainer is in better financial shape than many others across the country, getting into debt is not bound by state lines. Whether it’s due to a job loss, a long illness or simple money mistakes, many people find themselves sinking under a credit load they can’t dig themselves out of.

In this article, we will take a closer look at the debt picture in Maine, providing an explanation of debt collection laws and offering solutions for getting out of debt, with an honest look at the pros and cons of several different strategies.

Debt in Maine: At a glance

Maine debt
Type Per capita balance, 2018 Rank out of 50 states* U.S. per capita balance
Credit card debt $2,830 32 $3,220
Student loan debt $5,340 24 $5,390
Auto debt $4,490 30 $4,700
Mortgage debt** $26,090 32 $33,680
*No. 1 is highest
**First-lien debt only
Source: Federal Reserve Bank of New York, March 2019

Debt collection in Maine

When it comes to debt collection, Maine residents should be aware of the federal Fair Debt Collection Practices Act (FDCPA). This law governs debt collectors and protects consumers against “abusive, unfair or deceptive practices.” While Maine is exempt from several sections of the federal law, residents are covered under a state version of the law, which was enacted by the Legislature in 1985 and is enforced by the Maine Bureau of Consumer Credit Protection.

The Bureau lays out the requirements for debt collectors and provides details to consumers about what they can expect and what is and is not allowed in the state.

For instance, debt collectors in Maine must call consumers between the hours of 8 a.m. and 9 p.m., and they may only speak with the person who owes the debt or that person’s spouse, attorney or executor.

Maine also has specific requirements related to auto financing and wage garnishments. Under state law, a creditor cannot attempt to recoup the unpaid balance on a car loan if the initial financed amount was $2,800 or below. If the car is repossessed and sold, the creditor is required to pay the consumer any surplus between what was owed and what was received.

According to federal law, garnishments per pay period are capped at “25% of a debtor’s disposable earnings or the amount by which the debtor’s disposable earnings are greater than 30 times the federal minimum wage — whichever is lower.” Maine law is more protective than federal law on wage garnishment. While it states that a consumer’s pay can also be garnished at 25% of their disposable earnings, the second calculation is set at 40 times the federal minimum wage.

Responding to collection letters

It can feel overwhelming to receive collection letters, but the first step toward resolution is to verify the debt — quickly. It may be that the debt is not yours or that it was already paid. Under Maine law, you have 30 days from the date you receive the first written notice to request verification and and/or dispute that debt. Collection agencies must cease their collection efforts once they receive this written notice, but may resume once they have sent you evidence that you owe the debt.

You can request verification by mailing a letter to the collection agency asking for documentation of the debt. You’ll want to state that you are unsure of the validity of the debt and ask for the name and address of the original creditor. This is important because it is common for creditors to sell debts to other collection companies, which makes it more difficult to know if you actually owe the debt. Additionally, if the debt collector cannot prove the debt belongs to you, all collection activities should come to a stop.

Dealing with debt collectors can be stressful, and you may feel like ignoring calls or yelling at the person on the phone, especially if their tone is becoming more aggressive and the requests more persistent because you’re not making payments. Staying calm and polite, outlining the best times to call you (and at what number), and being responsive and communicative — even when making a payment is a hardship — is typically the best course to take. Don’t forget to also keep a record of all communications with the debt collector and payments you make.

If you know the debt is not yours, you can respond to the creditor with a letter stating that you do not owe this debt. The CFPB has templates of letters you can use to respond to debt collectors, including if you need more information on the debt, do not owe the debt or want to set specific parameters around communication.

If you have received a collection letter and want to ensure that the legal requirements have been met on the part of the debt collector, you can check Maine’s Consumer Credit Protection’s guidelines. Knowing your rights under the law is the first step on the Consumer Financial Protection Bureau’s (CFPB) tips for how to respond to debt collectors.

If you are faced with a lawsuit over a debt, the Maine State Bar Association’s Lawyer Referral Program and Legal Services for the Elderly may also be available to provide legal help at a reduced cost.

If you believe a creditor has violated the law or want to report abusive behavior, you can submit a complaint to the Office of the Maine Attorney General or to the CFPB.

Understanding Maine’s statute of limitations

Statutes of limitations give debt collectors a specified period of time during which they can file a lawsuit to recover funds owed on a debt. That time period differs from state to state.

For Maine consumer debt cases, the statute of limitations ranges from four to 20 years, with the clock starting once the borrower stops making regular payments. In this state, a judge also has the option of applying the statute of limitations of the state where the creditor in question is located. For example, if you live in Maine but the owner of the credit card debt you’ve defaulted on is based in California, the judge could decide to go by California’s statute of limitations instead of Maine’s.

In lieu of a statute of limitations on taxes, Maine can place a lien on the consumer’s property for up to 10 years, with the possibility of extending the lien for an additional 10 years if the debt remains unsettled.

When the statute of limitations has expired on a debt, although debt collectors can no longer sue you, they may still call and send letters about the debt to try to recoup it. In that case, it’s important not to make any payments or even promise to make a payment. Doing so could legally reset that statute of limitations on a debt, giving the debt collector a new shot at taking you to court.

Maine Statute of Limitations on Debt
Mortgage debt 20 years
Medical debt 6 years
Credit card 6 years
Auto loan debt 4 years
State tax debt 6 years (for civil action; liens can be extended after 10 years)

Maine debt-relief programs

Consumers looking to get out of debt in Maine have a number of resources at their disposal. CA$H Maine, a collaboration of 10 coalitions made up of 50 for-profit and nonprofit entities all over the state, provides outreach and education for residents on everything from reducing debt to increasing income and savings. It also offers free tax preparation for income-qualified residents. Maine residents who need assistance with debt collectors, credit reporting agencies, loan brokers and other consumer finance-related issues can contact the Bureau of Consumer Credit Protection in Maine.

In addition, Maine has developed a unique program that provides student debt relief for those who qualify. The program provides a tax credit to Maine residents who get their degree in the state and then continue to live, work and pay taxes in the state post-graduation. The tax credit is also extended to employers of qualified graduate residents. Tax credits vary by degree and and graduation year, but for 2018, they are $74 for an associate’s degree, $377 for a bachelor’s degree, and $328 for a graduate degree. You can get more information about Maine’s Educational Opportunity Tax Credit here.

There may also be national programs that can help with debt consolidation in Maine. CuraDebt negotiates settlements with creditors and collection accounts for a fee, which are, on average, 20% of the total monthly payment. Programs typically take two to four years to complete. Most other national programs do not operate in Maine, however, so beware of scams and companies who claim ask for upfront fees, charge high commissions, or make promises that are not realistic.

Payday lending laws in Maine

It’s not uncommon for people who are facing dire financial circumstances to turn to payday loans. These unsecured, short-term loans typically carry extremely high interest rates that can make the money borrowed more expensive than expected compared to any other form of credit.  Borrowers may also turn to several of these lenders at once if they are not able to get enough money from one loan, further worsening their financial situation. According to Maine’s Bureau of Consumer Credit Protection, nearly one quarter of individuals who ask them for help owe money to more than one payday lender — a vicious cycle the bureau attributes to juggling one loan to pay another’s high interest charges.

In Maine, these consumer loans have tiered finance charges depending on the amount. Specifics of payday loans in the state include:

  • Maximum loan amount: None
  • Finance charges: Interest rates for payday loans in Maine are capped at 30% per year for unpaid balances on loans under $2,000; 24% per year for loans of more than $2,000 to $4,000; and 18% per year for loans of more than $4,000.

Maine also limits origination fees at 10% of the principal amount and the monthly maintenance fee at 15% of the average outstanding loan amount for that given month.

Under Maine law, lenders can also assess a minimum finance charge equal to: $15 for a loan between $75 and $250 and $25 for a loan over $250. Maine has instituted an extra layer of protection for consumers by requiring that payday lenders be licensed and post a surety bond of $25,000 for each of their licensed locations.

However, payday loans remain a pricey and risky type of credit that can end up costing borrowers far more than they ever imagined.

Tips to tackle debt in Maine

Numerous other strategies can help Maine residents get out of debt, and each has its pros and cons. While weighing options, it’s important to keep the end goal in mind, whether that is preserving your credit, paying debts off sooner, lowering your monthly payments, or a combination of factors. Consumers will also want to thoroughly research any companies they are considering working with. Debt management can be big business for some unscrupulous companies, and what seems like a good solution may be an invitation to prey on your desperation.

Debt consolidation

Debt consolidation allows consumers to fold several outstanding debts, such as credit cards, personal loans and medical debt, into one loan with the goal of lowering payments and making the payoff schedule more manageable. Once you are approved for a debt consolidation loan, the funds are provided as one lump sum.

A benefit to this type of debt management is that borrowers may qualify for a debt consolidation loan with a credit score as low as 600, but, as with most loans, better rates and terms tend to be reserved for those with higher scores. A higher rate may make consolidation unaffordable. Fees may also add to your outstanding balance, or may be required as an upfront payment.

Debt settlement

Debt settlement is another service that allows consumers to pay down their debts, but one that is considered by the National Foundation for Credit Counseling (NFCC), the nation’s largest and longest-serving nonprofit financial counseling organization, to be riskier.

Debt settlement companies often keep their customers’ money in an account while it grows into a substantial enough sum to settle debts with creditors. This can mean missed payments and negative marks that impact the consumer’s credit score for years to come. The NFCC cautions that a consumer’s credit score can drop up to 125 points. In addition, there may be steep upfront or back-end fees associated with this service.

Debt management programs

A debt management program is considered to be “by far the safest and most reliable route to take if you are unable to control your spending,” according to the NFCC. These programs include a credit counseling session with a certified credit counselor to help consumers create a feasible budget and debt repayment plan.

Consumers also consolidate multiple debts into one payment with this option, but, typically with the cooperation of creditors, which can help safeguard credit. Credit counselors may be able to negotiate away over-the-limit and late fees and reduce interest rates. These programs can still result in damaged credit, however, if your credit utilization score is impacted by having to close credit cards or if missed or late payments appear on your credit report.

The success of this type of program largely depends on the company used. For this reason, the organization recommends working with an NFCC Certified Credit Counselor. You can also get a list of approved credit counseling agencies in Maine on the United States Department of Justice website.

Refinance

If your debt load has become unmanageable and you’re still current on your mortgage and other credit obligations, you may just have a built-in answer to your money problems. A standard refinance could lower your interest rate and your payment, depending on the terms of your loan, which would free up more money each month to put toward your debts. With a cash-out refinance, you could also turn your equity into a lump sum to pay off the debts.

Keep in mind that a cash-out refinance will likely raise your monthly payment, and refinancing to a new 30-year term resets the clock on your mortgage. This may be counterproductive to your plan of paying your home off sooner.

You also may not have previously considered the idea of refinancing with your car, but if you financed its purchase, you may be able to negotiate a new loan. Refinancing a car may extend the loan period, and you may have a different interest rate; a lower rate will increase your savings, but even if you are not able to qualify for a lower rate, you may still be able to save enough money with the new loan to make it worthwhile. The downside to refinancing a car loan and extending the loan period is that you may end up paying more on the car than it is worth.

Use a balance transfer card

Balance transfer credit cards offer an enticing way to manage credit and save money, if used wisely. The idea is to move an existing balance to a new card with a low (or zero) APR, thereby saving you money on interest. These cards typically offer promotional periods from 12 to 21 months, and there may be a transfer fee involved, so it’s important to carefully compare offers.

The downsides: Balance transfer cards with low interest rates, and, especially zero interest rates, are generally harder to qualify for. Most of them will require a credit score of 700 or higher, so if your credit score has already been compromised by late payments or other missteps, you may not make the cut. It’s also possible that your debt exceeds the transfer limit on your new card, which may mean you’d have to take out more than one card. Additionally, if the promotional period isn’t long enough to get your debts paid off, you may find yourself right back in the same position again, with a high interest rate and unpaid debt.

Take out a home equity loan

Is there money in your home? Is your credit still in decent shape? If so, a home equity loan might be the answer to your credit woes.

A home equity loan is considered a second mortgage, and it provides a lump sum of money that can then be used to pay off debts. Most home equity loans have fixed rates, with the best rates typically going to those with the best credit. Lenders will generally allow homeowners to borrow up to 85% of their home’s loan-to-value ratio (LTV), which is the home’s current value minus the amount owed on the loan.

The main downside to using equity to pay other debts is that you could be putting your home at risk. If you default on your new loan, the bank may start foreclosure proceedings. Home equity loans typically also have fees you may have to pay upfront or roll into your loan, which can increase the monthly payment.

Filing for bankruptcy in Maine

If other debt management options aren’t doable, you may consider filing for bankruptcy. While this can be seen as a last resort given the serious and long-lasting effects on your credit, it may also end up being the best chance for a fresh start for those who are at the end of their financial rope. According to the Administrative Office of the U.S. Courts, there were more than 765,863 individual bankruptcy filings in 2017 and 12.8 million between 2005–2017.

In Maine, as in other states across the country, consumers have two main options for filing bankruptcy: Chapter 7 and Chapter 13. A Chapter 7 filing wipes out a consumer’s debts by liquidating their existing assets to pay creditors. Major debts that can be paid through this type of bankruptcy include credit card debt, medical bills, legal judgments and personal loans.

Individuals must pass the means test in order to file for Chapter 7. This test compares the filer’s median family income to that of same-size families in the state to determine if they qualify for this type of bankruptcy; if their income is too high, they may need to file Chapter 13. A Chapter 7 bankruptcy stays on your credit report for 10 years.

With a Chapter 13 bankruptcy, the debtor enters into a payment arrangement with creditors to pay back debts over three to five years. With this type of bankruptcy, consumers are generally able to hold on to some of their property and also may be able to keep their home, even if it is in the process of being foreclosed upon.

Qualifications for Chapter 13 bankruptcy include: filers must not be a corporation; must have unsecured debts below $394,725 and secured debts under $1,184,200; must be current on all income tax filings (and able to pay any taxes that come due while their bankruptcy case is ongoing); and must not have discharged debt from a previous Chapter 13 bankruptcy within a two-year timeframe or during the past four years for a Chapter 7, 11, or 12 bankruptcy. A Chapter 13 bankruptcy remains on your credit report for seven years.

It’s important to remember that bankruptcy is not a fix-all. Child support and alimony will still need to be paid, and tax and student loan debt also may remain.

Maine law covers a number of exemptions that allows residents to safeguard some of their property if they file for bankruptcy. They include items such as:

  • Home equity up to $47,500, or $95,000 if you have a minor dependent or a dependent 60 years or older or who is disabled living in the home
  • Up to $7,500 in one vehicle
  • Up to $750 in jewelry for the resident’s (or resident’s child’s) personal use
  • Up to $1,000,000 in an individual retirement account

More information and details of additional state exemptions can be found on the Maine Legislature site, which also contains frequently asked questions and information about where to file in Maine.

The bottom line

Getting into debt is a familiar problem, and one that residents of Maine and every one of the 49 other states in the country are facing. Consumer credit is rising, but it doesn’t have to rule or ruin your life. What may seem like a desperate financial position can be turned around in a number of ways in Maine. Whether you choose to go with a debt management program, refinance your home or auto loan, or file for bankruptcy, you can put an end to the debt merry-go-round.

The information in this article is accurate as of the date of publishing.

 

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