According to the 2005 Bankruptcy Act, all states must follow federal guidelines for bankruptcy. There are three such District Bankruptcy Courts in the state of New Mexico. The most common types of bankruptcy are Chapter 7, Chapter 11, Chapter 12 and Chapter 13.
Chapter 7 is sometimes referred to as "elimination bankruptcy" this is due to the success in which Chapter 7 removes unsecured debt from a petitioner's financial responsibility. Non-dischargeable debt like child support, back taxes and student loans are not eliminated through bankruptcy and remain the responsibility of the debtor. Still, this is an attractive choice for those with few assets and a high debt to low income ratio.
Another option is restructuring debt through Chapter 13 bankruptcy. Petitioners for this type of bankruptcy are able to repay their minimized debt over a period of 3 to 5 years. As long as the payments are being made as agreed upon in court, the petitioner can keep more of their valuable assets such as their home or car.
Chapter 11 offers debt relief to businesses that need time and accountability to repay debts. Typically there is a 3 to 5 year summary for Chapter 11 and businesses can remain in operation and have protection over business assets while payments are being made. Similarly, Chapter 12 assists family farmers and fishermen who need time to repay debt, but wish to continue operating.
Credit counseling is required of all petitioners of bankruptcy within 6 months of filing. Those that wish to pursue bankruptcy debt relief have additional steps to follow.
First, it is necessary to find out for which type of bankruptcy a petitioner is eligible. This can be determined through a Means Test, comparing the income of the petitioner over the last 6 months with the income of the rest of New Mexico. If an individual's income is below the median for the state, he or she may file for Chapter 7 or Chapter 13 bankruptcy. Thos who have a higher income are only eligible for Chapter 13.
Gathering paperwork is the next step to prepare documentation for the court. These documents may include, but are not restricted to: 2 years of tax returns, records of any major recent financial transactions, all loan information, property deeds, titles of vehicles, an inventory of all assets, a list of all debts and monthly living expenses. For those filing for Chapter 13, the court also requires a detailed summary of how outstanding debt can be repaid in 3 to 5 years.
The documents, debt repayment summary, and all necessary forms are submitted to the court and referred to as "the schedule." Some people who file bankruptcy choose to have legal guidance through an attorney while others choose to file on their own. The cost to file for Chapter 7 is $306 and can be waived in specific cases. Chapter 13's fee is $281 and cannot be waived. Of course, all attorney fees are the responsibility of the petitioner.
After the court has the schedule, an automatic stay is issued to make sure creditors are not in direct contact with the debtor, and to halt any foreclosure proceedings. A court appointed trustee will then oversee the case to determine what non-exempt assets can be liquidated for repayment of debt and to hold a 341 meeting. This conference allows the creditors and debtor to negotiate terms of repayment. If no agreement can be made, a judge will intervene.
No bankruptcy is final without the completion of a financial management course approved by the court. Lastly, a petitioner of Chapter 13 bankruptcy must continue to make payments as agreed upon in their repayment summary to avoid returning to court.
The counties of New Mexico are all under shared jurisdiction of three District Bankruptcy Courts. The courts can be found in the following cities: Albuquerque, Las Cruses and Roswell. Each District Court must adhere to the same federal standards.