Why do people file for bankruptcy?
Usually, it is because their marriage is breaking up and they are getting a divorce; or they lost their job and can't pay all their bills; or they had a really unusual medical situation and owe tens of thousands of dollars to the hospital that they can not afford to pay. There are other reasons but these are the main and most common ones.
For your purposes, as a consumer that lives in New Mexico, there are two kinds of bankruptcies: a "Chapter 7," and a "Chapter 13."
CHAPTER 7 Bankruptcy for New Mexico residents
The Chapter 7 is for people who do not have much in the way of assets or income. You can file a Chapter 7 bankruptcy and keep $60,000 equity in your home or less ($120,000 if you're married). You can also keep $4,000 equity in one vehicle, and some other miscellaneous things. You can file this Chapter 7 bankruptcy (in New Mexico) if you have some equity in your home (as mentioned above); if you have $4,000 or less equity in one vehicle, and some household goods.
To be more exact, the numbers I used above are some of the exemptions available if you use the New Mexico exemptions. If it is better for you, I can use the federal exemptions. I just have to interview you and learn more about your situation to know which is better for you.
CAUTION: PLEASE DO NOT read this and then decide "I can't file bankruptcy because (x, y, z)." Come talk to me first. While these numbers "are accurate," that does not mean that you can't slide in with something that differs. Generally speaking, it is up to the Trustee what he/she will accept and what they will not. I have found that the Trustees are not demanding of "exactness."
The Chapter 7 bankruptcy is called a "discharge." You discharge your obligation to pay all of your debts.
"All of your debts?"
Basically, yes, but not exactly yes. One of the best kept secrets is that federal income taxes, state income taxes, and sales taxes,and the interest and penalties on them, in many cases, are completely dischargeable in Bankruptcy.
Credit Cards are "Unsecured debts."
Think about your credit card debt. You bought a BBQ grill with your credit card. You gave Home Depot or Walmart the card, took the grill, and went home. Credit card debts are "unsecured." They are like signature loans: there is no asset that secures the credit card debt. That means that if you do not pay the credit card debt that the creditor can NOT come and take the things (the BBQ grill) that you bought with the credit card.
But what about your home? Your car?
These are "Secured debts."
If you buy a home, you sign an Agreement to Pay, but you also sign (give) a Mortgage to your banker. The mortgage gives the banker the legal right to come take your home away from you if you do not pay for it. The mortgage is a "LIEN" on your home.
Do you have to pay for your home if you file a Chapter 7 bankruptcy? No, you do not IF YOU DO NOT WANT TO KEEP YOUR HOME. Yes, you do, if YOU DO WANT TO KEEP YOUR HOME. Why? Because your home is secured by a lien (called a mortgage), and bankruptcy does not affect the lien. Legally, we say that "liens pass through bankruptcy unaffected."
Do you lose all your equity in your home? No. In New Mexico, if you file for bankruptcy, you keep $60,000 equity in your home, and if you are married, as a couple filing bankruptcy, you can keep $120,000 equity in your home. If you will sit down and discuss it with me, I can make it much clearer than this.
OR - if you want to, you can file for Chapter 7 bankruptcy and REAFFIRM your debt. That way, you keep your home, you keep your equity, you keep paying for it, but the rest of your debts are discharged.
What about your car? Same thing, except that the lien that the finance company has on your car is called a "Security Agreement," not a "Mortgage." But it works the same as above. If you do not want to keep paying on your car, you do not have to. But you have to give the car back. You can not stop paying for it and expect to also keep it.
Repossession and Garnishments
If you have had a vehicle repossessed, you most likely can get it back by filing for Chapter 7 bankruptcy.
And if your wages are being garnished, you CAN stop that by filing for Chapter 7 bankruptcy.
Tort claims based on recklessness - "Domestic Support Obligations" - "Student Loans"
You can not (generally) discharge any of these debts in bankruptcy, but you need to sit down with me and discuss it to get an exact picture of what might be possible.
What does filing a Chapter 7 Bankruptcy really do for you?
It means that you do not have to keep paying for your unsecured credit cards.
You do not have to keep your car and home if you do not want to, and you will not be sent a bill for a "deficiency judgment" on them.
You can get your car back if it was repossessed.
You can stop garnishment of your paycheck.
But you very likely will have to keep paying your student loans, and DSO's, and tort claims based on recklessness.
You can literally get a "fresh start."
CHAPTER 13 Bankruptcy for New Mexico residents
The Chapter 13 is for people who have stuff (assets), and have a job with a regular wage. You want to keep your assets, and you can make payments. The problem is that you are behind on your bills. You would like to be able to make your creditors work with you, because you know if you could get a little breathing room that you can make it. That's what a Chapter 13 bankruptcy does for you: the Bankruptcy Court makes your creditors work with you. In fact, in some situations the Court will actually "write down" or reduce what you owe to certain creditors. And, parallel to that, will make your creditors take a lesser amount in the meantime. This is called "working a Plan." These Chapter 13 "Plans" will frequently last for three years. But at the end of it, you will be caught up with your creditors, and you will have been able to keep all your assets.
How Will Bankruptcy Affect My Credit?
Interestingly enough, probably not all that much. On the one hand, it will affect your credit score, but on the other hand, six months after you have filed for bankruptcy, you probably will start getting offers from credit card companies in the mail. As long as you have a job, you can buy a car someplace, and probably buy a house. Will you pay a higher interest rate? Probably.
How Long Does it Take to do a Bankruptcy?
It can usually be done and filed fairly quickly (meaning in two weeks or less). But the moment it is filed it stops your creditors from calling you and bugging you. If they do keep calling you, document it and bring it to my attention and I will happily sue them for you.
It takes about 4 months for your case to work its way completely through the bankruptcy court system.
Do I Have to Go To Court?
You almost never have to go to Court. You DO have to go to what is called a "Meeting of Creditors." About 30 days after I file bankruptcy for you (in a Chapter 7), you will be required to go to a meeting of creditors ("MOC"). The MOC gives the creditor a chance to come and ask you questions. Why would that happen? Let's suppose you decided you were going to file bankruptcy. And let's suppose you decided that you were going to celebrate that, and you used your credit card(s) to pay for a trip around the world. And then you filed for bankruptcy and attempted to discharge your obligation to pay back the debt on those credit cards in bankruptcy. If you did that (I knew someone who did that once), then the creditor would show up at your MOC and object to those debts being discharged in bankruptcy.
By the way - what I just described above - is ILLEGAL. It is FRAUD. You can not go run up a debt knowing that you are going to file bankruptcy, and then file for the bankruptcy and expect to not have to pay it back. It does not work that way. That is DISHONEST and the Trustee and the Court will not allow you to do it (and I won't help you do it).
Other than something fraudulent like I just described, creditors almost never go to the MOC.
Does this tell me EVERYTHING there is to know about filing for Bankruptcy?
Of course not, but it gives you a pretty good overview. Make an appointment with me and I'll go over your situation with you and then you will have a very good idea which bankruptcy is best for you, if any, and how it will affect your situation.
Nedbalek Law Office, LLC is a "debt relief agency."
I do Chapter 7 bankruptcies for individuals and small businesses.
I have successfully done small business bankruptcies involving hundreds of thousands of dollars.
I have successfully done individual bankruptcies involving many hundreds of thousands of dollars.
I treat everyone with respect and kindness. It has never been harder to make it in this economy. It's not your fault! Come talk to me. I am here to help you!