In New Mexico, filers are generally allowed to choose between applying federal bankruptcy exemptions or state-specific bankruptcy exemptions to their property. This means that most filers can take advantage of either exemption structure, depending on which will yield the most favorable results. However, if you haven’t lived in New Mexico for a minimum of two years, you may be required to use a specific exemption structure in accordance with federal and state laws. This approach aims to prevent people from moving to a different state to take advantage of the best exemption offerings available.
Written by Attorney Kassandra Kuehl.
Updated July 28, 2020
What are the New Mexico bankruptcy exemptions and why are they important in a Chapter 7 bankruptcy?
It is a myth that filing for Chapter 7 bankruptcy means that your trustee will sell most of your property to pay back your creditors. Chances are that most or all of your property will be protected from this risk bybankruptcy exemptions. Bankruptcy exemptions allow filers to maintain ownership of certain kinds of property so that they can maintain a basic standard of living. Luxury items and particularly expensive property may be sold by a filer’s trustee so that the profits from that sale may be passed along to the filer’s unsecured creditors. However, most Chapter 7 bankruptcy filers don’t own much unusually expensive personal property, so their possessions tend to be safeguarded by bankruptcy exemptions.
Does New Mexico allow the use of federal bankruptcy exemptions?
In New Mexico, filers are generally allowed to choose between applyingfederal bankruptcy exemptions or state-specific bankruptcy exemptions to their property. This means that most filers can take advantage of either exemption structure, depending on which will yield the most favorable results. However, if you haven’t lived in New Mexico fora minimum of two years, you may be required to use a specific exemption structure in accordance with federal and state laws. This approach aims to prevent people from moving to a different state to take advantage of the best exemption offerings available.
New Mexico Bankruptcy Exemptions
Many filers choose to take advantage of generous New Mexico bankruptcy exemptions instead of claiming federal exemptions. You must choose one structure or the other, as you aren’t generally allowed to “pick and choose” the more generous exemption available for any category of exempt property. The only real exceptions to this rule are that if you use New Mexico exemptions, you can additionally use some federal nonbankruptcy exemptions as well. These federal “add on” exemptions are limited to specific categories of retirement, survivor, death, and disability benefits.
If you do choose to apply New Mexico exemptions to your property, know that there are safeguards available for 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 that are available to them. For example, the New Mexico homestead exemption is $30,000. If a married couple co-owns their real property, this exemption increases to $60,000 in value.
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 why state residents tend to choose this exemption scheme over the federal exemption structure. As noted above, bankruptcy filers may safeguard up to $30,000 in real property value, $60,000 if the filers are married, filing jointly, and co-own the real property in question. With this said, there are some limitations to this exemption that may affect the overall value of property that you’re allowed to safeguard if you file New Mexico exemptions. For example, if you owe past due taxes to the state or local government, if you owe money to professionals for work completed on your home, or if your property is already subject to a lien, the amount of value you can safeguard under the homestead exemption may be affected. Note that if you don’t use the homestead exemption while using the New Mexico exemption structure, 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 debtors don’t own their own homes, so they are primarily concerned with protecting their personal property and any benefits that they are 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, they may claim $1,500 of value in tools of their trade, $4,000 in motor vehicle value, $2,500 in jewelry, and $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.
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 is so important to apply every exemption you possibly can to not only your property but your income as well. If you don’t apply every exemption available to you, you could find yourself losing a great deal of income, as well as property. One of the ways in which New Mexico exemptions differ from federal exemptions is that New Mexico allows filers to exempt the greater of either 75 % of their 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 are a wage earner, failure to take this unique exemption into consideration when deciding between New Mexico and federal exemptions can hurt your household’s bottom line.
Other New Mexico Exemptions
In addition to the above exemptions, the New Mexico state exemption structure allows filers to safeguard $5,000 in benevolent association or fraternal association benefits. The bankruptcy court will also honor the total exemption of life insurance benefits or annuities in any amount or kind. In addition to the exemption of life insurance benefits, the Bankruptcy Code exempts health insurance, accident insurance, and life insurance proceeds. Similarly, 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.
Other specialized exemptions include funds held in escrow for the benefit of a construction contractor, ownership interest in unincorporated associations, and property belonging to formal business partnerships. 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 under the federal exemption structure as well.
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 will remain current until April 1, 2022. Keep in mind that if you are 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 $4,000. If you’re married and filing jointly, the motor vehicle value exemption available to you and your spouse is $8,000.
In addition to the motor vehicle exemption amount noted above, federal exemptions (for a single filer) include a homestead exemption of up to $25,150. If you don’t need to use that total value, up to $12,575 of the homestead exemption can be applied to other property of one’s choice. Additional exempt property values under the federal exemption structure include:
Alimony or spousal support (total value)
Child support (total value)
Crime victims’ compensation (total value)
Disability, illness, or unemployment insurance benefits (total value)
Health aids and other health equipment (total value)
IRAS and Roth IRAs (up to $1,362,800)
Jewelry (up to $1,700)
Life insurance policy (loan value up to $13,400)
Life insurance policy for a lost loved one you depended on, which you currently need for support (total value)
Lost earnings payments (total value)
Public assistance and other public benefits (total value)
Personal injury recovery (up to $25,150 – exceptions made for pain and suffering, as well as pecuniary loss)
Personal property: Animals, appliances, books, clothing, crops, furniture, household goods, and musical instruments (up to $625 per item, up to $13,400 overall)
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 (total value)
Social Security benefits (total value)
Tools of Trade: Books, implements, and tools of the trade (up to $2,525)
Veteran’s benefits (total value)
Unmatured life insurance policy except credit insurance (total value)
Unemployment compensation (total value)
Wildcard ($1,325 total plus unused homestead exemption value up to $12,575)
Wrongful death recovery for loss of an individual you depended on for financial reasons (total value)
Filing Chapter 7 bankruptcy?
Filing for Chapter 7 bankruptcy is the best debt relief option available for many low-income debtors. If you’re interested in learning more about whether filing for Chapter 7 bankruptcy might be the best option for your unique situation, please speak with aNew Mexico bankruptcy attorney about your circumstances. Depending on your income, you may be better served by filing forChapter 13 bankruptcy. Most independent bankruptcy attorneys and law firms offer free consultations that allow individuals to ask questions so that they can make an informed decision about their options. If you can’t afford additional legal advice from a New Mexico bankruptcy lawyer, know that the nonprofit organization Upsolve may be able to help youfile on your own for free. Additionally, Upsolve maintains an updated library of online resources that anyone can access at any time at no cost. If you want to learn more about the bankruptcy process generally, clicking around on theUpsolve website is a great place to start.