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New Mexico Bankruptcy Basics
It is a common misconception that bankruptcy should be feared when there are significant financial pressures from debt. Filing bankruptcy, contrary to misinformation provided by the credit industry, will often increase one’s credit score as it removes debt and improves the debt-to-income ratio. Although the bankruptcy will reflect on the credit file for up to ten years, most people can obtain respectable credit scores within two years of their discharge, when that would not have been possible if they did not file. Few people will lose assets in bankruptcy due to the favorable exemptions in New Mexico. If someone is in danger of losing significant assets, a bankruptcy lawyer will generally steer them away from filing bankruptcy.
We strongly recommend choosing an experienced bankruptcy lawyer to guide you through this process.
There are three primary forms of permissible bankruptcy allowed by law called ‘chapters’.
Chapter 7 is the most common form of bankruptcy. Chapter 7 allows for near total discharge of debts for smaller sole-proprietorship businesses and individuals. Discharge of debts is only after liquidation of all non-exempt debts to be used to help repay any debts possible. But the exemptions tend to pretty generous, so most people have no non-exempt assets to be sold. In New Mexico, if you choose the state exemptions, you and your spouse can keep $120,000 in equity in a home and unlimited retirement benefits and household goods and reasonable vehicles. If you choose the federal exemption, generally best for people without equity in their house, a couple use a “wild card” exemption and keep as much as 24,000 in miscellaneous property, which might include cash in the bank or a nice paid-off truck or camper, in additional to modest vehicles and household goods and retirement accounts. In other words, many people are surprised by the amount of assets they can retain, while discharging their debts.
Chapter 11 bankruptcy is designed to allow for the reorganization, or rehabilitation, of a business or an individual burdened with excessive debt. Usually Chapter 11 is used to allow “breathing room’ for a business or individual with assets who for some reason has encountered financial problems but believe they can repay the debt over time.
Chapter 13 bankruptcy is a fairly common form that focuses on reorganization or rehabilitation of debts for individuals. Debt in a Chapter 13 is not discharged but restructured so the filer can make repayment over time and generally only available to individuals who have a steady income.
Exemptions are important!
Not all debt is the same!
Some debt will never be discharged by filing for bankruptcy including:
- Student loans
- State and federal taxes
- Spousal and child support obligations