- Individual debtors may file for Chapter 7 or Chapter 13 bankruptcy.a poor purse image by Maria Brzostowska from Fotolia.com
Whether people have suffered job loss, a divorce lowering family income or unexpected medical expenses, many New Mexico debtors are suffering financially. The bankruptcy code offers help to such debtors. Individual debtors may either file for Chapter 7 or Chapter 13 bankruptcy. The debtor receives a discharge of his debts in different manners with each chapter. - Because many debtors took advantage of Chapter 7 bankruptcy when they should have filed for Chapter 13, the bankruptcy code now requires debtors to qualify for Chapter 7 by taking a means test. The debtor compares his family income to the median family income for a family of the same size in New Mexico. If the debtor's family income is below the state median, he can file for Chapter 7.
As of 2010, the Census Bureau listed New Mexico's median incomes as $36,642 for a single earner; $50,457 for a family of two; $50,457 for a family of three; and $55,363 for a family of four. Add $7,500 for each family member in excess of four.
If the debtor's family income is more than the state median, he should calculate his monthly disposable income by subtracting allowed monthly expenses from monthly income. If his monthly disposable income is less than $100, he can file for Chapter 7 bankruptcy. If his monthly disposable income is more than $100, but not enough to pay at least 25 percent of his debts over the next 60 months, he can file for Chapter 7 bankruptcy. - If the debtor's monthly disposable income is more than $100, and that income would pay at least 25 percent of his debts over the next 60 months, she fails the means test. This shows that the debtor can fund a debt repayment plan. If the debtor wishes to file for bankruptcy after being disqualified for Chapter 7, she must file for Chapter 13. In a Chapter 13 case, she will end up repaying her debts over the next three or five years. If her family income is less than the state median, she will spend three years repaying her debts. If her family income is more than the state median, she will spend the next five years repaying her debts.
- With both Chapters 7 and 13, the debtor files a bankruptcy petition and schedules listing assets, liabilities, income and expenditures. A trustee will be appointed to the debtor's case, and the trustee reviews the debtor's court filings. In a Chapter 13 case, the debtor makes monthly debt repayment plan payments to the trustee. The trustee distributes those monthly payments to each of the debtor's creditors. In a Chapter 7 case, the trustee sells all of the debtor's non-exempt property and uses the proceeds to repay the debtor's creditors. Each state lists property that cannot be sold to pay creditors. New Mexico does not allow the following property to be sold: homestead up to $60,000, motor vehicle up to $4,000, clothing, books, furniture, pensions, wages, public benefits, tools of trade, insurance and several less common items.
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