This page contains a list of questions that prospective clients often ask when facing the prospect of seeking protection under the U.S. Bankruptcy Code, as well as our answers to those questions. This FAQ is not intended to replace the counsel of a licensed attorney, and does not constitute legal advice from this firm. It does not address every possible scenario. Contact us for a personal consultation.
What is Chapter 7 bankruptcy?
Chapter 7 or a “straight” bankruptcy is the most common type of bankruptcy in New Mexico. Approximately 92% of all bankruptcy cases filed in the state are Chapter 7.
Chapter 7 discharges or eliminates unsecured debt giving you a “fresh start.” However, some debts like child support and alimony (known as Domestic Support Obligations or DSO’s) are not discharged in Chapter 7. Under certain circumstances some taxes may be discharged. The Law Offices of Ron Holmes can review your tax liability to determine if any of the tax debt can be discharged. Student loans are non-dischargeable except in rare cases.
A typical Chapter 7 case will be open for approximately 3 1/2 months from the day the case is filed until the date the discharge is entered by the Court.
A Chapter 7 Trustee is appointed to review your financial affairs and assets. You are entitled to keep certain types of your property provided you have an allowed protection for the property. These protections are known as “exemptions” and have limitations on the available dollar values. Exemptions can be complicated and experience is critical. One of the services that our firm offers is a review of your assets and the exemptions available to you. The Law Offices of Ron Holmes will claim every available exemption that you may be entitled.
The Trustee has the power to liquidate (“sell”) assets that have not been claimed exempt. If the trustee determines that there are no assets available for him/her to sell (this happens about 95% of the time), the case is reported as a “no asset” case and the trustee files a “No Distribution Report”. The Bankruptcy Court will automatically issue a discharge about 60 days later provided no objections are filed. All debts entitled to be discharged are forgiven and the creditors are forever prohibited from trying to collect those debts from you.
Will I be able to keep all or most of my assets if I file a Chapter 7 bankruptcy?
You can keep your assets to the extent they are within the exemptions available under the law. In a vast majority of cases, clients are permitted to keep their personal belongings, including the equity in your house, one motor vehicle car and all household goods. If you owe more on your house and car than they are worth, the bankruptcy trustee will not sell them because there would be no money left over after a sale to pay your creditors. If you have equity in your house, car and personal property, the exemptions may protect your property. Legal advice is critical to help protect the property you intend to save.
Can I transfer or dispose of my possessions before I file bankruptcy?
Maybe. All transfers of property done in the two years preceding the bankruptcy must be disclosed. However, if you give away, sell for less than fair value or transfer an asset to someone before you file for bankruptcy the trustee may have the right to recover the property from the person you transferred it to. In other words, it is possible that the bankruptcy trustee may be able to reverse that transfer. Transfers made within two years of bankruptcy may be grounds for the trustee to object to you receiving a bankruptcy discharge. If you have already taken such actions, you should consult an attorney with our firm to determine if steps can be taken to undo the harm you may suffer because of an improper transfer.
I have previously filed for bankruptcy and am in a desperate financial crunch. Can I file again?
Under bankruptcy law, you can only file a Chapter 7 bankruptcy if you have not received a bankruptcy discharge within the last eight years (the eight-year period runs from your previous filing date). You can file a Chapter 13 after receiving a Chapter 7 discharge, but you cannot receive a discharge in Chapter 13 if you received a discharge in a Chapter 7 case filed within four years of the petition date of your Chapter 13. If you have a previous Chapter 13 discharge, you cannot file another Chapter 13 within two years of the previous filing.
Will a Chapter 7 discharge all of my debts?
No. As discussed in the first question above, Chapter 7 does not discharge certain debts. Chapter 7 is designed to discharge unsecured debts such as medical bills and credit card debt. Other debts such as student loans, some types of taxes, and debts associated with driving under the influence of intoxicants generally cannot be discharged in Chapter 7. Debts incurred through fraud or false pretenses may not be dischargeable in Chapter 7 or Chapter 13. If you find yourself in this situation, you should meet with an attorney with our firm to determine the exact nature of your debts and which bankruptcy chapter is the best for you.
Does my spouse have to file with me?
No. Either spouse can file alone and does not need the permission of the non-filing spouse to file. New Mexico is a community property state and that means that both of you are jointly responsible for debts created during the life of your marriage. If you and your spouse are both jointly obligated on certain debts, your bankruptcy will prevent the creditor from trying to collect from you, but the creditor can still attempt to collect from your spouse on a community debt from property owned as sole and separate property.
I keep hearing that a Chapter 7 Trustee will take my “non-exempt” property. What is my “non-exempt” property?
When you file a Chapter 7, the Trustee is only interested in property that he/she can sell. The proceeds are used to pay unsecured creditors. The trustee can only sell property that is not protected by your allowed exemptions. If you own a car worth $4,000, and you still owe $4,000 to the lender, the Trustee won’t take the car because he/she would have to pay all of the sale proceeds to the car lender and there would be nothing left for unsecured creditors.
Public policy mandates that no one should be deprived of all of their property, and therefore the New Mexico legislature has created “exemptions.” Exemptions are a dollar value in certain property that is protected from all of your creditors, including a bankruptcy trustee. If the value of your property is within the exemption limits, the Trustee will not take and sell the “exempt” property. One of the services that our firm can provide to you is a review of your assets. We will maximize your allowed exemptions available to you.
What is “secured” debt?
A “secured” debt is a debt where you have agreed, or pledged, collateral (property) to insure your payment of the debt. In other words, if you are unable to pay the debt, the lender can take the property as partial satisfaction of the debt. Common examples of secured debt are your mortgage loan (secured by your house) and your car loan (secured by your car). Sometimes household goods (TV, appliances, etc.) can also be secured to pay the debt owned by the seller of the goods.
Do I have to get a certificate from a credit counseling agency to be qualified to file bankruptcy?
Yes. Pre-bankruptcy counseling is mandatory under BAPCPA. No individual may be a debtor in bankruptcy unless the individual first undergoes a consumer credit counseling consultation and receives a certificate of completion (a list of approved counselors can be found in the forms section of this website). The certificate must be presented to the Bankruptcy Court at the time the bankruptcy is filed. We refer to this as your “ticket in” to bankruptcy.
Do I have to complete a “debtor education course” as a condition to getting a Chapter 7 discharge?
Yes. If the credit counseling is your “ticket in,” then the second class is your “ticket out.” Most credit counselors can provide you with both classes, but you can only take the second class after you have a case number from the Court. Each provider will charge for the privilege and you should expect to pay around $25 tp $50 for each person, per session.
What is the “Means Test” for a Chapter 7?
Under the new law (BAPCPA), a debtor will be disqualified for Chapter 7 relief if his or her income is above a certain level based on the median income of the state of residence AND allowed expenses exceed certain guidelines. The Means Test is a complicated process for evaluating a debtor’s income and expenses to determine whether or not the debtor meets a presumption in favor of one chapter over another. Because the means test is so complicated, you should consult an attorney with our firm for guidance through the process. The attorneys with our firm have a great deal of experience in litigation regarding the means test.
If you do not pass the requirements for the Chapter 7 Means Test, you may still be able to file a Chapter 13.