What Are the New Mexico Bankruptcy Exemptions?

What Are the New Mexico Bankruptcy Exemptions and Why Are They important in a Chapter 7 Bankruptcy? 

It's a myth that filing for Chapter 7 bankruptcy means that your trustee will sell all your property to pay back your creditors. Chances are that most or all of your property will be protected by bankruptcy exemptions. Bankruptcy exemptions allow filers to keep certain kinds of property so that they can maintain a basic standard of living. Most Chapter 7 bankruptcy filers find that all their possessions can be safeguarded by bankruptcy exemptions.  

Does New Mexico Allow Filers To Use Federal Bankruptcy Exemptions?

In New Mexico, filers are generally allowed to choose between the federal bankruptcy exemptions or state bankruptcy exemptions to protect their property. This means that most filers can take advantage of either set of exemptions. If you haven’t lived in New Mexico for at least two years, you may be required to use the federal exemptions. This law aims to prevent people from moving to a different state to take advantage of better exemptions.

New Mexico Bankruptcy Exemptions

Many filers choose to take advantage of New Mexico's generous bankruptcy exemptions instead of claiming federal exemptions. You must choose one structure or the other, though. You can't pick and choose exemptions from both sets. But if you use New Mexico's exemptions, you can also use some federal nonbankruptcy exemptions. These exemptions protect specific categories of retirement, survivor, death, and disability benefits.

New Mexico's exemptions can be used to protect real property, personal property, and different kinds of benefits and insurance policies. Each exemption either covers the total value of a specific kind of property or a value up to a specific amount. Generally, married couples who are filing jointly may double the exemption values available to them.

Real Property: The New Mexico Homestead Exemption

The New Mexico homestead exemption is more generous than the federal one. This is one of the primary reasons that state residents tend to choose to use the state exemptions instead of the federal ones. Under the state exemptions, bankruptcy filers can safeguard up to $60,000 of equity in real property value or $120,000 if the filers are married, filing jointly, and co-own the real property in question.

There are some limitations to this exemption that may affect the overall value of property that you can protect if you file using state exemptions. For example, if you owe past-due state or local taxes, if you owe money to professionals for work completed on your home, or if there's a lien on your property, the amount you can safeguard under the homestead exemption may be affected.

If you don't own a home or don’t otherwise need to use the New Mexico homestead exemption, you’re eligible to claim $2,000 of value ($4,000 if married and filing jointly) in alternative real property or in personal property under the state’s wildcard exemption.

Personal Property Exemptions

Many low-income bankruptcy filers don’t own their a home, so they're primarily concerned with protecting their personal property and any benefits that they're regularly entitled to. New Mexico has generous personal property exemptions, which usually allow low-income filers to protect most, if not all, of their personal property.

Specifically, the state generally allows Chapter 7 filers to exempt an unlimited amount of their books, clothing, furniture, common household goods, and medical devices used to facilitate their health. Additionally, filers may claim:

• $1,500 of value in tools of their trade

• $4,000 in motor vehicle value

• $2,500 in jewelry

• $500 in additional personal property of the filer’s choice.

Some building materials, gas wells, and other specialized equipment may be exempt up to their total value. Keep in mind that each of these values is doubled if a filer is married and filing jointly with their spouse.

These generous exemption amounts allow most low-income filers to maintain their basic standard of living without having to surrender property to be sold for the benefit of their creditors by the trustee appointed to their case.

Money Benefits

When the bankruptcy court assigns a trustee to oversee a filer’s case, that trustee is tasked with conducting a meeting between the filer and their creditors. The trustee is also tasked with selling off non-exempt assets and property for the benefit of the filer’s unsecured creditors. This is why it's so important to apply every exemption you possibly can to your property and income.

If you use the New Mexico exemptions, you can exempt the greater of either 75% of your disposable earnings or the equivalent value of 40 times the federal minimum wage. This is known as the wage garnishment exemption because it helps to protect the eligible portion of your income from being garnished by your creditors once you’ve filed for bankruptcy. If you're a wage earner, be sure to use this unique exemption if you decide to use the New Mexico exemptions. Note that federal exemptions don't have a similar provision for income.

Other New Mexico Exemptions

In addition to the above exemptions, the New Mexico state exemptions allow filers to safeguard $5,000 in benevolent association or fraternal association benefits.

The following are also exempt:

• Life insurance benefits or annuities in any amount or kind

• Health insurance, accident insurance, and life insurance proceeds

• Funds held in escrow for the benefit of a construction contractor

• Ownership interest in unincorporated associations

• Property belonging to formal business partnerships

Retirement account benefits and retirement pensions are also broadly exempt under the Bankruptcy Code. These benefits can be protected using the Bankruptcy Code even if you’ve chosen to claim the New Mexico bankruptcy exemptions generally. 

Public assistance benefits are also safeguarded from garnishment, as is crime victim compensation, unemployment compensation, and workers’ compensation benefits. You may also recall that in addition to these specific state exemptions, if you choose to file under the state structure, you may additionally exempt specific categories of retirement, survivor, death, Social Security, veteran’s, and disability benefits using federal nonbankruptcy exemptions.

Federal Exemptions

Before deciding whether to claim New Mexico bankruptcy exemptions or federal exemptions, you’ll want to compare each exemption structure. Depending on your situation, you may benefit significantly from choosing one over the other. Federal exemptions are updated every three years. The following figures were last updated on April 1, 2022.

Keep in mind that if you're married and filing jointly, your federal bankruptcy exemption amounts are doubled. For example, a single filer can claim the value of a motor vehicle up to $4,450. If you’re married and filing jointly, the motor vehicle value exemption available to you and your spouse is $9,000.

In addition to the motor vehicle exemption amount noted above, federal exemptions (for a single filer) include a homestead exemption of up to $27,900. If you don’t need to use that total value, up to $13,950 of the homestead exemption can be applied to other property of one’s choice.

Under federal exemptions, the following are exempt up to their total value:

• Alimony or spousal support

• Child support

• Crime victims’ compensation

• Disability, illness, or unemployment insurance benefits

• Health aids and other health equipment

• Life insurance policy for a lost loved one you depended on, which you currently need for support

• Lost earnings payments

• Public assistance and other public benefits

• Retirement accounts that are tax-exempt: 401(k)s, 403(b)s, defined benefit plans, money purchase plans, profit-sharing plans, SEP and SIMPLE IRAs

• Social Security benefits

• Veteran’s benefits

• Unmatured life insurance policy except credit insurance

• Unemployment compensation

• Wrongful death recovery for loss of an individual you depended on for financial reasons

Here are some other common federal exemptions and the amounts they protect:

• IRAS and Roth IRAs up to $1,512,350

• Jewelry up to $1,875

• Life insurance policy with a loan value up to $14,875

• Personal injury recovery up to $27,900, with exceptions for pain and suffering and pecuniary loss

• Personal property: Animals, appliances, books, clothing, crops, furniture, household goods, and musical instruments up to $700 per item, up to $14,875 overall

• Tools of Trade: Books, implements, and tools of the trade up to $2,800

• Wildcard up to $1,475, plus unused homestead exemption value up to $13,950

Filing Chapter 7 Bankruptcy? 

Many New Mexico residents have used bankruptcy to find relief from overwhelming debt. If you aren't sure whether to file Chapter 7 or Chapter 13 or which set of exemptions will be best for you to use, you can schedule a free consultation with a New Mexico bankruptcy attorney. If you have a simple Chapter 7 case, Upsolve may be able to help you file on your own for free.