An Alternative Option To Bankruptcy For New Mexico Residents

As of 2021, the total state debt of New Mexico was approximately $5.7 billion, according to the US Debt Clock website. This includes both general obligation and revenue bonds, as well as other types of debt. The state’s debt per capita is around $2,717. New Mexico’s debt as a percentage of its gross state product (GSP) is relatively high at around 15.5%, compared to the national average of 4.9%. As of 2021, the bankruptcy filing rate in New Mexico is 2.6 filings per 1,000 people according to data from the United States Courts. In 2020, there were a total of 5,578 bankruptcy filings in New Mexico. Of the 5,578 filings in 2020, 4,602 were Chapter 7 filings, which is the most common type of bankruptcy filing. There were also 921 Chapter 13 filings and 55 Chapter 11 filings.

What Types of Bankruptcy Can Individuals Use?

Individuals can typically file for either Chapter 7 or Chapter 13 bankruptcy. Chapter 7 bankruptcy, also known as “liquidation” bankruptcy, involves the sale of a debtor’s non-exempt assets to pay off creditors. However, many assets are exempt from liquidation, including a certain amount of equity in a primary residence, a certain amount of personal property, and retirement accounts. Chapter 7 bankruptcy may be a good option for individuals with few assets and a large amount of unsecured debt, such as credit card debt or medical bills. Chapter 13 bankruptcy, also known as “reorganization” bankruptcy, involves the creation of a court-approved repayment plan to pay off creditors over a period of three to five years. This type of bankruptcy may be a good option for individuals with a regular income and a large amount of secured debt, such as a mortgage or car loan, who want to keep their assets and pay off their debt over time.

What Types of Bankruptcy Can Businesses Use?

Businesses typically file for either Chapter 7 or Chapter 11 bankruptcy. Chapter 7 bankruptcy for businesses involves the sale of a business’s non-exempt assets to pay off creditors. This type of bankruptcy may be a good option for businesses that are unable to continue operating or that have few assets and a large amount of debt. Chapter 11 bankruptcy for businesses, also known as “reorganization” bankruptcy, involves the creation of a court-approved plan to restructure the business’s debt and operations. This plan may include renegotiating contracts and leases, reducing debt, and restructuring the management and operations of the business. This type of bankruptcy may be a good option for businesses that have a viable business model but are struggling with debt and cash flow issues.

Learn More about the 3 main types of bankruptcy

What You Need To Know About Business Bankruptcy

If you are considering business bankruptcy in New Mexico, there are several important things to keep in mind:

• Explore other options first: Bankruptcy should be considered as a last resort. Before filing for bankruptcy, explore other options for managing your business’s debt, such as negotiating with creditors, restructuring your operations, or selling assets.
• Understand the different types of bankruptcy: As mentioned, businesses can file for either Chapter 7 or Chapter 11 bankruptcy. It is important to understand the differences between these types of bankruptcy and which one is right for your business.
• Consult with an experienced bankruptcy attorney: Bankruptcy is a complex legal process, and it is important to have the guidance of an experienced attorney who can help you navigate the process and ensure that your rights are protected.
• Know the bankruptcy laws in New Mexico: Bankruptcy laws can vary by state, so it is important to understand the specific laws and regulations that apply to businesses in New Mexico.
• Prepare for the impact on your business: Bankruptcy can have a significant impact on your business’s operations, credit rating, and reputation. It is important to prepare for these impacts and develop a plan for moving forward after the bankruptcy process is complete.
• Be honest and transparent: It is important to be honest and transparent throughout the bankruptcy process. Provide accurate information to the court and your creditors, and be upfront about your financial situation and your plans for addressing your debt.

Bankruptcy Laws in New Mexico

Bankruptcy laws in New Mexico are governed by federal law, specifically the United States Bankruptcy Code, which applies in all states, including New Mexico. However, there are also state-specific bankruptcy laws and exemptions that may apply to individuals and businesses in New Mexico. Here are some key points to keep in mind about bankruptcy laws in New Mexico:

• Bankruptcy courts in New Mexico: New Mexico is part of the United States Bankruptcy Court for the District of New Mexico, which has jurisdiction over all bankruptcy cases filed in the state.
• Exemptions in New Mexico: New Mexico has its own set of bankruptcy exemptions, which allow individuals to keep certain assets, such as their primary residence, personal property, and retirement accounts, even if they file for bankruptcy. Some of the exemptions in New Mexico are more generous than the federal exemptions, so it is important to consult with an experienced bankruptcy attorney to determine which exemptions apply to your specific case.
• Means test: Like all states, New Mexico requires individuals who file for Chapter 7 bankruptcy to pass a means test, which determines whether their income is low enough to qualify for Chapter 7 bankruptcy. The means test compares the individual’s income to the median income in New Mexico, and if the individual’s income is higher than the median, they may not be eligible for Chapter 7 bankruptcy.
• Credit counseling: Before filing for bankruptcy in New Mexico, individuals are required to complete a credit counseling course from an approved agency.
• Automatic stay: When an individual or business files for bankruptcy in New Mexico, an automatic stay goes into effect, which prevents creditors from taking any further collection action against the debtor. This includes halting foreclosure proceedings, wage garnishments, and debt collection calls and letters.
• Discharge of debt: Bankruptcy in New Mexico can result in a discharge of certain debts, meaning that the debtor is no longer legally obligated to repay them. However, not all debts are dischargeable, and some debts may require the debtor to make payments over time through a repayment plan.

Are All Debts Discharged in Bankruptcy?

While bankruptcy can provide relief from many types of debts, not all debts can be discharged through bankruptcy. Here are some examples of debts that may not be discharged in bankruptcy:

• Certain taxes: Generally, income taxes that are more than three years old cannot be discharged in bankruptcy. Other types of taxes, such as payroll taxes, are not dischargeable at all.
• Student loans: In most cases, student loans cannot be discharged through bankruptcy, unless the debtor can prove that repaying the loans would cause undue hardship.
• Child support and alimony: Debts related to child support and alimony cannot be discharged in bankruptcy.
• Debts incurred through fraud: Debts that were incurred through fraud or other wrongful conduct may not be dischargeable.
• Fines and penalties: Debts owed to government entities, such as fines and penalties, are generally not dischargeable in bankruptcy.
• Debts incurred after filing for bankruptcy: Any debts incurred after filing for bankruptcy are not dischargeable.
• Personal injury judgments: Judgments resulting from personal injury lawsuits that were caused by the debtor’s intentional or malicious actions may not be dischargeable.

It is important to note that there may be other types of debts that are not dischargeable in bankruptcy, and the specific rules may vary depending on the type of bankruptcy case and the jurisdiction in which it is filed.

How Does Bankruptcy in New Mexico Affect Tax Debt?

Bankruptcy can affect tax debts in New Mexico, but the specific impact will depend on the type of bankruptcy case and the nature of the tax debt. Chapter 7 bankruptcy: In Chapter 7 bankruptcy, most tax debts are not dischargeable, meaning that the debtor will still be responsible for repaying them. However, some tax debts may be dischargeable if they meet certain conditions, such as being at least three years old and meeting other criteria related to the timing of the filing of the tax return. Chapter 13 bankruptcy: In Chapter 13 bankruptcy, tax debts are generally treated as priority debts, meaning that they must be paid in full as part of the repayment plan. However, the debtor may be able to negotiate with the IRS or the state taxing authority to reduce the amount of the debt, or to establish a payment plan that is more manageable. In both Chapter 7 and Chapter 13 bankruptcy cases, filing for bankruptcy can trigger an automatic stay, which prevents the IRS and other creditors from taking collection action against the debtor. This can provide temporary relief while the bankruptcy case is ongoing. It is important to note that bankruptcy does not affect all types of tax debts equally. For example, payroll taxes and certain other types of tax debts are not dischargeable in bankruptcy, and the debtor will still be responsible for repaying them.

What Happens To Your Home and Car in Bankruptcy?

In bankruptcy in New Mexico, it is possible to lose your home or car, but it depends on the type of bankruptcy case you file, the value of the property, and the amount of equity you have in the property. Chapter 7 bankruptcy: In Chapter 7 bankruptcy, the bankruptcy trustee may sell non-exempt assets to pay off creditors. However, in New Mexico, debtors can choose to use either the federal bankruptcy exemptions or the state exemptions, which can protect certain assets from being sold, including a certain amount of equity in your home and car. If you have equity in your home or car that exceeds the exemption limit, the trustee may be able to sell the property to pay off your creditors. Chapter 13 bankruptcy: In Chapter 13 bankruptcy, you may be able to keep your home and car if you can continue to make payments on them through the repayment plan. If you are behind on payments, you can use the repayment plan to catch up on missed payments over time. However, if you do not make the payments required under the plan, you may lose the property.

How Will Bankruptcy in New Mexico Affect Your Credit Score and Future Loans?

Bankruptcy can have a significant impact on your credit score and ability to obtain future loans in New Mexico. In terms of credit score, bankruptcy can cause a significant drop, typically ranging from 130 to 240 points depending on the individual’s credit history. This drop can make it challenging to obtain credit in the future, and any new credit accounts that you are approved for may come with higher interest rates or stricter terms. Additionally, a bankruptcy filing will remain on your credit report for up to 10 years, which can make it difficult to obtain new credit during that time. However, it’s important to note that the impact of bankruptcy on your credit score will lessen over time, and you can take steps to rebuild your credit over time. Regarding future loans, having a bankruptcy on your record can make it challenging to obtain new loans, especially for major purchases such as a home or car. Many lenders may see a bankruptcy filing as a risk and may require a higher down payment, higher interest rates, or more stringent repayment terms.

Statute of Limitations for Collections in New Mexico

In New Mexico, the statute of limitations for collections varies depending on the type of debt. The statute of limitations refers to the amount of time that a creditor or debt collector has to file a lawsuit to collect a debt. After the statute of limitations has passed, the debt is considered time-barred, and the creditor cannot legally sue to collect it. Here are the statute of limitations for collections in New Mexico:

• Written contracts: 6 years-This includes debts that are based on a written agreement, such as credit card debt, personal loans, or car loans.
• Oral contracts: 4 years-This includes debts that are based on an oral agreement, such as verbal promises to pay back a loan.
• Promissory notes: 6 years- This includes debts that are based on a written promise to pay, such as a loan agreement that includes a promissory note.

It’s important to note that the statute of limitations is counted from the date of the last payment or activity on the account. So if you make a payment or acknowledge the debt in any way, the clock can reset, and the statute of limitations can start over. If you are contacted by a debt collector about a debt that is past the statute of limitations, you have the right to dispute the debt and request that the collector stop contacting you. However, it’s important to seek legal advice before taking any action, as the laws regarding debt collection can be complex.

Know The Cons of Bankruptcy

While bankruptcy can provide relief for individuals struggling with overwhelming debt in New Mexico, it also has several potential drawbacks that should be carefully considered before making a decision. Here are some of the cons of bankruptcy in New Mexico:

• Impact on credit score: Bankruptcy can have a significant negative impact on your credit score, which can make it challenging to obtain new credit in the future. The bankruptcy will remain on your credit report for up to 10 years, and any new credit accounts you are approved for may come with higher interest rates or stricter terms.
• Cost of bankruptcy: Filing for bankruptcy can be expensive, and you may need to pay attorney fees, court costs, and other expenses associated with the bankruptcy process. If you cannot afford these costs, you may need to seek assistance from a non-profit organization or pro bono legal services.
• Loss of assets: Depending on the type of bankruptcy you file, you may be required to surrender some of your assets to repay creditors. This could include your home, car, or other valuable possessions.
• Public record: Bankruptcy is a matter of public record, which means that your bankruptcy filing will be accessible to anyone who searches for it. This could have implications for your professional and personal life, including job prospects and social relationships.
• Emotional toll: Bankruptcy can be emotionally draining, and it can take a toll on your mental health and well-being. It’s important to seek support from friends, family, or a mental health professional during this challenging time.

Compare the Pros and Cons of Bankruptcy: Pros and Cons of Filing Bankruptcy

Will You Regret Filing For Bankruptcy?

​​While filing for bankruptcy can provide relief for those struggling with overwhelming debt, it’s not always the best solution for everyone. Here are some reasons why people may regret filing bankruptcy:

• Negative impact on credit score: As mentioned earlier, bankruptcy can have a significant negative impact on your credit score, which can make it challenging to obtain new credit in the future. This can cause regret for some people who did not fully understand the long-term impact of bankruptcy on their credit.
• Loss of assets: Depending on the type of bankruptcy you file, you may be required to surrender some of your assets to repay creditors. This can be a significant loss for some individuals, especially if they lose their home, car, or other valuable possessions.
• Emotional toll: Filing for bankruptcy can be emotionally draining, and it can take a toll on your mental health and well-being. Some people may regret filing bankruptcy because of the stress, shame, and stigma associated with it.
• Limited financial options: After filing for bankruptcy, it can be challenging to obtain credit or loans, which can limit your financial options. This can lead to regret for some people who did not fully understand the impact of bankruptcy on their future financial situation.
• Public record: As mentioned earlier, bankruptcy is a matter of public record, which means that your bankruptcy filing will be accessible to anyone who searches for it. This can have implications for your professional and personal life, which can cause regret for some individuals.

It’s essential to carefully consider all the potential consequences of filing for bankruptcy before making a decision.

Don’t Qualify For Bankruptcy in New Mexico? Don’t Panic

If you do not qualify for bankruptcy in New Mexico, you may need to explore other options for managing your debt. An alternative to consider is debt settlement. Debt settlement involves negotiating with creditors to settle your debts for less than the full amount owed. This can be a good option if you have a significant amount of debt but cannot qualify for bankruptcy.

There are some potential benefits to debt settlement over bankruptcy that may make it a more favorable option for some individuals.

• No bankruptcy on your credit report: Filing for bankruptcy shows on your credit report for up to 10 years. On the other hand, debt settlement does not show as a bankruptcy.
• Cost: Filing for bankruptcy can be expensive, with filing fees, attorney fees, and other costs adding up quickly.
• Emotional Impact: People report horror stories of the negative emotional impact of BK.
• With a bankruptcy for the rest of their life: Employers or lenders can ask if someone has filed BK for the rest of their life. It is much less likely to be asked if one ever used debt settlement to pay back an agreed to amount.
• Control: With debt settlement, you may have more control over the process and negotiations with your creditors, whereas with bankruptcy, a court will make the final decision.
• Less severe consequences: Filing for bankruptcy can have significant consequences, such as the liquidation of your assets, whereas debt settlement may allow you to negotiate a more manageable repayment plan while keeping your assets.

Bankruptcy vs. Debt Relief: What’s Right For You and How We May Be Able To Help

CuraDebt – A Bankruptcy Alternative To Consider

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