How Do You Qualify for Chapter 7 in New Mexico?

If you are someone who has been struggling to manage your debt and is feeling at a loss, filing for Chapter 7 bankruptcy could provide the financial relief you need. You might be wondering, “How do you qualify for Chapter 7 in New Mexico?” The process is thorough, involving a means test, residency requirements, and ensuring that your finances align with bankruptcy guidelines. By better understanding the qualifications, you can make a more informed decision.

Understanding Chapter 7 Bankruptcy

Chapter 7 bankruptcy, otherwise referred to as “liquidation bankruptcy,” is an opportunity for individuals to discharge most of their unsecured debt balance. This can include balances on their credit cards, medical bills, and other personal loans under their name. This option differs from Chapter 13, which involves a payment plan. Rather, Chapter 7 requires the individual to sell non-exempt assets to pay off their creditors. Here are the steps for Chapter 7 bankruptcy:

• Step 1: Pass the Means TestArguably, the most critical requirement for Chapter 7 bankruptcy is to pass the means test. This test is designed to figure out if your income is low enough to qualify. At a high level, the test will compare your household income to the median income of those of a similar size in New Mexico.

  If your income is below the state median, you will automatically qualify for Chapter 7. If your income is above this threshold, you will be required to make additional calculations to determine if you have enough disposable income to pay off the debts you have accumulated. If you do, you may be directed to file for Chapter 13 instead.

• Step 2: Meet Residency RequirementsTo file for Chapter 7 bankruptcy, you must have lived within the district you are filing for 180 days. If you wish to also use one of New Mexico’s bankruptcy exemptions to protect specific assets from liquidation, you will need to have lived in the state for at least two years. If you don’t meet this requirement, you may be required to use whatever exemption laws existed from your previous state of residence.
• Step 3: Review Your Debt TypeIt’s true that not all debt can be discharged under Chapter 7. The most common debt that does apply includes:
  • Credit card balances
  • Medical bills
  • Personal loans
  • Certain utility bills

  Debt that will not be considered for Chapter 7 includes:

  • Student loans (unless you can make a case for extreme hardship)
  • Child support and alimony payments
  • Most tax debt
  • Court-ordered fines and restitution
• Step 4: Ensuring No Recent Bankruptcy DischargesIf you have filed for bankruptcy in the past, there are mandatory waiting periods that you will need to abide by before you can file again. For example, you are required to wait eight years from the date a previous Chapter 7 bankruptcy was discharged for you. If you previously filed for Chapter 13 and want to switch to Chapter 7, you will be required to wait six years.
• Step 5: Complete Mandatory Credit CounselingBefore you can file, you will be required to complete a credit counseling course with an approved provider. You must do this within 180 days before you submit your bankruptcy petition with your attorney. A debtor education course is also required to be completed. This is typically done after you file but before you have been officially discharged.

What Happens After You Qualify?

Once you have satisfied all these qualifications, submit your bankruptcy paperwork to the U.S. Bankruptcy Court for the District of New Mexico. Once this has been filed, an automatic stay will go into effect. This will stop all creditors from harassing you, garnishing wages out of your paychecks, or trying to pursue legal action. If a review of your situation reveals that all Chapter 7 requirements have been met, your qualifying debt will be officially discharged.

FAQs

Q: How Much Debt Do You Need to Qualify for Chapter 7?

A: There is no minimum debt requirement needed to file for Chapter 7. Bankruptcy is generally only beneficial if you have a significant amount of debt, with evidence that you can no longer manage this on your own. Most people who file will have thousands of dollars in unsecured debt. If your debt is relatively low and you have sufficient income, the court may suggest some alternative repayment options to get you the relief you need outside of bankruptcy.

Q: Why Would Chapter 7 Be Denied?

A: One of the most common reasons why Chapter 7 could be denied is failing the means test. This happens when someone’s income is too high to qualify. Other reasons why individuals have been denied in the past involve fraudulent behavior, such as attempting to hide assets, transferring property before filing, or making significant purchases on credit without ever having the intent to repay it back. If you have been denied, a bankruptcy attorney can help you decide what is next.

Q: Can I Keep My House If I File for Chapter 7 in New Mexico?

A: Whether or not you can keep your house in a Chapter 7 bankruptcy will depend on how much equity you have in the property and whether or not it qualifies for an exemption. You may be able to keep your home if the equity you have falls within the allowable exemption limits. However, if your home has significant non-exempt equity, you may be instructed to sell it as one step to repay back the creditors you owe money to.

Q: Will Filing for Chapter 7 Affect My Job?

A: When you decide to file for bankruptcy, you generally do not have to worry about it having any impact on your job. Employers are not typically notified when you file. However, if your wages are being garnished, the bankruptcy filing will stop the garnishment. This may require your employer’s payroll department to process the changes. If you have concerns about how this can impact your career, speak with an attorney for more clarity.

Contact Gilchrist Law Firm P.C. Today

If you are currently struggling to manage your debt and are wondering if bankruptcy is for you, contact our law firm today. We would be happy to look into the details of your finances and present your legal options so you can feel comfortable making your next financial move.