Common Questions of Bankruptcy in New Mexico
Here is a list of frequently asked questions that I’ve encountered when talking to clients considering bankruptcy. Not only should a potential client know if they qualify for bankruptcy, but they should also be aware of the relief that filing bankruptcy can give. Feel free to call us for a free consultation if you need help determining if filing bankruptcy will be beneficial for you.
What Debts Can I Discharge (Get Rid of) by Filing Bankruptcy?
Debts are commonly classified into two distinct groups: secured debt and unsecured debt. Basically a Chapter 7 bankruptcy can get rid of most types of unsecured debts. These debts include things like medical bills, credit cards, judgments obtained in a lawsuit against you, deficient judgments that arise after a vehicle is repossessed, and personal loans. Although student loans are unsecured, this type of debt is non-dischargeable.
Will I have to give up all my property?
No. The bankruptcy code allows debtors to exempt certain property from getting sold to satisfy creditors. New Mexico is unique because debtors can choose between a set of federal exemptions or state exemptions. The exemptions (whether you choose New Mexico the Federal) allow you to keep things like equity in your vehicle, equity in your home, household goods, much of your personal belongings, and more. In many cases, debtors do not have to give up any of their property. For more specific information regarding exemptions see Bankruptcy in New Mexico.
What debts cannot be discharged?
Most consumer types of debt are dischargeable as indicated above. Debts that are typically non-dischargeable include Federal & State taxes (unless they meet specific requirements, see Bankruptcy Common Questions: Taxes, for more information about the ability to discharge tax debts). Alimony and other support obligations are not dischargeable through a bankruptcy. Student loans are typically non-dischargeable unless you can show that the obligation is an undue hardship (for more information, see Bankruptcy Common Questions: Student Loans). Criminal fines and traffic tickets are also non-dischargeable. Other debts that were incurred by fraud, or through malicious or willful injury, are non-dischargeable.
How do I start the process?
The best way to start the process is to contact a local bankruptcy attorney. Give us a call today for a free consultation on whether bankruptcy can help you. Calling a local lawyer is important because where you live determines where you can file your bankruptcy, and different States have different rules that apply to bankruptcy. Your attorney will review your income, expenditures, assets, and debts to help you determine whether you qualify for a bankruptcy and whether you will have to give anything up in the process.
What documents are needed before I file?
Basically you will need to have a license (or some other legal form of identification) and social security card, copies of your last two tax returns (note that being current with your tax returns is usually required to file your bankruptcy), 6 months of paystubs, 2 months of bank statements (and possibly up to a year depending on your circumstances), and you will be required to take a pre-bankruptcy credit counseling course. In addition, it is usually a good idea to get a current copy of your credit report; note that usually your attorney can obtain a credit report for you.
What is the 2nd Bankruptcy course and when do I have to complete it?
The second class is a Financial Management Course and is required to get a bankruptcy discharge and is usually completed sometime after the 341 Creditors Meeting. You will get a certificate for this course as well that must be filed with the bankruptcy court before you get your discharge. Your attorney can recommend a service provider to take this course from. Most providers have the option to complete the course online or over the phone, there are also Spanish speaking service providers to better accommodate those who prefer Spanish.
What happens after I provide all my documents and finish the 1st “class”?
Your chapter 7 attorney will gather your information and prepare your petition. Once your attorney has completed your petition, he or she will have you review the bankruptcy petition because you are certifying that what is contained in the petition is true and accurate to the best of your knowledge. Once everything looks good in your petition, your attorney will file it, and the 341(a) Creditors Meeting will be scheduled between 20 – 40 days after the petition is filed.
With a Chapter 7 bankruptcy, a party known as the Trustee is appointed to oversee your case. It is the Trustee’s job to determine if you have any assets that are exempt, and if so the Trustee will sell such assets to distribute amongst your creditors. The Trustee will be sent copies of your pay stubs or documents which show income, your latest tax returns, and anything else requested by the Trustee (such as bank statements).
What happens at the 341 Creditor Meeting?
The 341(a) Creditor Meeting is an informal proceeding where the Trustee can question the debtor under oath. The Trustee will verify the identity of the debtors by verifying the identification and social security card. Creditors are also free to attend this meeting but rarely do. The Trustee will ask if the debtor has received and read the bankruptcy disclosures, the petition and schedules, and other questions such as whether any property has been transferred within a certain time frame, whether the debtor has any claims against other people (as this is technically an asset). The Meeting usually only lasts 5 minutes.
When will I get my discharge?
Usually a discharge notice will be sent out 60-75 days after the Creditors Meeting. If you don’t receive notice within that time period, you should inquire with your attorney as to the status of your case.
Will I be able to get credit?
One issue is that filing a bankruptcy goes on your credit report for 10 years. I often see that many people filing bankruptcy have bad credit already as a result of not being able to make payments on debt obligations. Most people filing bankruptcy will find that their credit score improves drastically within a year of bankruptcy.
Also you will have ample opportunity to rebuild your credit because now that you’ve got rid of lots of debt and cannot file bankruptcy again for 8 years, you are seen as a good risk from the credit card company’s perspective. So don’t be surprised when you starting getting credit card offers after your bankruptcy discharge. One tip when reestablishing credit, is to only purchase things which you can pay off immediately when the bill comes.
Is the debt that got discharged taxable?
Many debtors will receive a 1099 from tax debts that get discharged and often wonder if they must claim this as income on their taxes. The short answer is that the discharged debt will not have a negative impact on your taxes but you must properly account for those debts by filling out a form 982 to indicate the debts that were discharged.
If you are considering filing bankruptcy, be sure to contact one of our Albuquerque Bankruptcy Attorneys to help you through the process.