New Mexico Bankruptcy Exemptions and Law
COVID-19 Update: Due to COVID-19, the clerk's office is closed. But a dropbox is available, as is limited telephonic assistance. Furthermore, the court has waived some wet ink signature requirements. Judges are conducting most hearings by phone, especially if witness credibility is not an issue. Trustees (people who oversee bankruptcies for judges) are conducting most meetings by videoconference. Click here for the latest updates in this evolving area.
The Benefits of a New Mexico Bankruptcy
If you want protection from over-aggressive creditors and you do not want to lose your assets, keep reading to learn how bankruptcy can mean a fresh start for you and your family.
This fresh start is available to honest yet unfortunate debtors. Most people fit into both these categories. Bankruptcy fraud cases typically make headlines. Statistically, however, such matters are few and far between. Furthermore, most bankruptcy debtors experience misfortune that is beyond their control. Examples include serious illness, divorce, and job loss.
Before, during, and after the proceeding, a bankruptcy lawyer helps your family take full advantage of its fresh start.
For the most part, our government is a combination of federal and state laws. Bankruptcy is a good example. The federal Bankruptcy Code controls many procedures. The New Mexico Statutes controls property exemptions as well as a few other areas.
This federal debt relief program shields your family's property. Largely due to some recent legal changes, many creditors do not need judicial permission to take action like:
- Bank account levy,
- Lien placement,
- Eviction, and
- Wage garnishment.
Bankruptcy's automatic stay immediately halts these actions. Typically, Section 362 of the Bankruptcy Code goes into full effect at the moment of filing. It stays in full effect until the judge closes the case. If you have filed bankruptcy within the last six months, the automatic stay might only have a limited effect. Frequently, a bankruptcy lawyer can extend the automatic stay in these situations.
More than just short-term relief is available. Bankruptcy also discharges most unsecured debts, such as:
- Medical bills,
- Signature loans,
- Credit cards, and
- Payday loans.
Bankruptcy's discharge option also gives you control over your own financial situation. Debt negotiation is often part of a consumer bankruptcy. During such negotiations, creditors know that if they do not make a favorable deal, the debtor will choose the discharge option, and they get nothing.
The reason they get almost nothing is simple. Creditors may only liquidate nonexempt assets. As outlined below, most people do not have many nonexempt assets - and in some cases, filers get to keep all of their property.
Kinds of Consumer Bankruptcy
If you are more than one month behind on a vehicle loan, mortgage loan, or other secured debt, you should consider Chapter 13 bankruptcy. After one missed payment, banks can legally begin foreclosure or other proceedings. And, as mentioned, most debtors do not get a day in court to tell their side of the story.
A Chapter 13 trustee helps these debtors establish income-based repayment plans. These plans could last up to five years. Each month, you remit a debt consolidation payment to the trustee, who then distributes the money among creditors.
The automatic stay remains in effect. So, if the plan pays all allowed claims within the time allowed, creditors must wait in line for their money. “Allowed claims" include secured debt arrearage and a few other obligations, such as legal fees.
Chapter 7 bankruptcy is often a good option for families who pay more than a third of their income on debt maintenance. If the trustee sees no obvious evidence of fraud, like inconsistencies between lifestyle and reported income, the judge may discharge most unsecured debts in as little as six months.
In some jurisdictions, an informal Chapter 20 bankruptcy is also an option. This combines elements of Chapter 7 and Chapter 13 bankruptcies. A Chapter 20 may be appropriate if you have debts that are not dischargeable, like back taxes or student loans. In this situation, you can file Chapter 7 to discharge significant unsecured debts like credit cards, and then file a Chapter 13 to reorganize leftover debt like student loans or what you owe to the IRS.
Even though the qualifications for bankruptcy extend beyond honesty and misfortune, most New Mexicans qualify under the written and unwritten rules.
A debt ceiling applies in Chapter 13 cases. Under federal law, these debtors cannot have more than $400,000 in total unsecured debts and $1.3 million in total secured debt. These figures usually change once a year. So, unless you recently bought a mansion, you probably qualify for Chapter 13 bankruptcy.
Various unwritten rules, which are different in different jurisdictions, usually apply as well. For example, the debtor must have sufficient disposable income to fund the monthly debt consolidation payment. If that's not the case, other options are usually available, such as non-bankruptcy debt negotiation. Frequently, a lawyer can use the threat of legal action as leverage to obtain more favorable repayment terms. Bankers have no idea the debtor is ineligible, so the threat is real to them.
The 2005 revisions to the Bankruptcy Code included the means test for Chapter 7 filers. These debtors must have below-average annual incomes. As of November 2020, this amount was $66,343 for a family of four. Once again, if you do not qualify, a bankruptcy lawyer can usually offer other options, usually including Chapter 13.
The informal Chapter 7 qualifications also involve income/expense disparity. But the rule is different. Unless Chapter 7 debtors are marginally in the red every month, the trustee might question the need to file a liquidation bankruptcy. Even if you have nothing to hide, such questions are unwanted.
On a related note, both Chapter 7 and Chapter 13 debtors must fully cooperate with the trustee. This cooperation includes attending required meetings, making required payments, and producing required documents. Most trustees request financial documents, like recent tax returns, and identification documents, like a Social Security card.
Exempt property is protected from creditor seizure. Just like there are written and unwritten bankruptcy exemptions, there are also written and unwritten property exemptions.
Most New Mexico bankruptcy filers elect the state exemptions. These exemptions are usually available if you have lived in New Mexico for more than two years. Some highlights include:
- Homestead exemption: Similar to the motor vehicle exemption, the homestead exemption is actually an equity exemption. If you have less than $60,000 of equity in your home, the trustee cannot touch it, and neither can creditors. Unless you have lived in your home for more than about ten years, you probably have very little home equity.
- Motor vehicle exemption: State law protects up to $4,000 of equity in a car, truck, motorcycle, SUV, or another motor vehicle. Generally, owners have practically no equity in new vehicles. On the other end of the spectrum, used vehicles often have almost zero financial value.
- Personal property: Jewelry, clothing, appliances, tools, electronics, furniture, and other household goods are normally exempt. A dollar amount ceiling applies in a few categories. However, most used personal items, like rings and laptops, have very little monetary value.
- Pension plans: Teacher retirement plans and other pension plans are 100 percent exempt. So are 401(k)s, IRAs, and other earned retirement accounts. Insurance payments and insurance policy equity is also exempt, as is most business partnership and trust property.
- Government benefits: Some people hesitate to file bankruptcy because they are afraid they will lose their VA disability, Social Security, or other government benefits. But these payments are exempt under New Mexico law. In fact, if you do not file bankruptcy, creditors might be able to garnish these benefits.
- Current wages: Other people are afraid to file because they think they will be unable to pay bills. That's not true either. New Mexico law protects up to 75% of your current wages.
- Wildcard: Common nonexempt items in New Mexico include boats, savings accounts, and campers. Bankruptcy debtors may exempt up to $5,000 worth of items such as these.
A bankruptcy lawyer can help you maximize these exemptions. For example, if you have more than $60,000 in home equity, a tenancy of the entirety might be able to protect it.
New Mexico is one of the only states which allows debtors to choose between state and federal exemptions. Some key federal property exemptions and their value caps, if any, include:
- Homestead ($25,150)
- Motor vehicle ($4,000)
- Personal property ($18,000)
- Life insurance ($13,400)
- Public benefits (100 percent exempt)
- Retirement accounts ($1.3 million)
- Wildcard (up to $13,900)
A bankruptcy lawyer can evaluate your case and determine if federal or state exemptions are best for you. Debtors must choose one list or the other. They cannot cherry-pick individual items.
Your bankruptcy lawyer is familiar with obscure legal loopholes, like the best interests of creditors rule, which can protect even more of your property.
Assume Vivien owns a small mobile home which she rents mostly to family and friends. Since she used her state wildcard exemption to protect her savings account, she cannot shield the mobile home. At least, she cannot use the written exemptions to shield it.
The trustee estimates the mobile home's quick sale value is $1,000. The QSV basically reduces an item's fair market value to reflect the owner's need to sell it immediately. The trustee also believes the mobile home needs about $500 of repairs and the sales costs, mostly storage costs, would be another $500.
Given these figures, it is probably illegal for the trustee to seize the mobile home. The item's seizure and sale would fetch little or nothing. In other words, such action is not in the creditors' best interests.
How do I start bankruptcy in New Mexico?
Since money is often tight when people file bankruptcy, and the basic forms are available here, many people file DIY (Do-It-Yourself) pro se bankruptcies. DIY bankruptcies save money initially. But they can cost more in the long run. DIY filers do not know all the laws and procedures. Instead, they must feel their way in the dark.
A partnership with a New Mexico bankruptcy lawyer is a much better choice. An attorney takes care of all the complex paperwork. Additionally, only a lawyer can unlock advanced bankruptcy options, like the aforementioned tenancy of the entirety.
Where do I file bankruptcy in New Mexico?
The only bankruptcy court in the Land of Enchantment is in Albuquerque. DIY filers must submit all paperwork in person or via snail mail. Lawyers can use the state's ECF (Electronic Case Filing) system to file paperwork, pay expenses, pull records, and perform other tasks.
How much does bankruptcy cost in New Mexico?
Most people must pay bankruptcy filing fees, which are usually about $350, in advance. Occasionally, payment plans or fee waivers are available. In contrast, payment plans and sliding scales are almost always available for legal fees. In fact, many bankruptcy lawyers allow clients to pay professional fees via the monthly debt consolidation payment.
How do I declare bankruptcy in New Mexico?
Debtors must file a complete petition and schedules. Furthermore, they must cooperate with the trustee, timely pay all required fees, and attend all required meetings or hearings. All debtors must also complete a pre-filing credit counseling course in addition to a post-filing budgeting class.
What debt is not covered by bankruptcy?
Secured debt payments, like a home mortgage, are not dischargeable in bankruptcy. If you stop making payments, the creditor will seize the collateral, whether or not you file bankruptcy. Criminal fines and family support payments, like alimony, are not covered in bankruptcy. Some obligations, mostly student loans and back taxes, are only dischargeable in some situations.
Which bankruptcy is better, Chapter 7 or 13?
If you have significant unsecured debt, Chapter 7 is typically better, because you quickly get a fresh start. If you are behind on secured debts or do not qualify for Chapter 7, Chapter 13 is better, because you get time to catch up on these payments. If both seem about equally beneficial, Chapter 13 looks a little better on a credit history report than Chapter 7.
Note: State laws are always subject to change through the passage of new legislation, rulings in the higher courts (including federal decisions), ballot initiatives, and other means. While we strive to provide the most current information available, please consult an attorney or conduct your own legal research to verify the state law(s) you are researching.