In order to understand bankruptcy exemptions in New Mexico, it may be helpful to know exactly what a bankruptcy exemption is first. A bankruptcy exemption is generally defined as a statute that protects certain forms of property and/or assets from being seized by creditors during a bankruptcy proceeding. Also, if a bankruptcy exemption is found to apply to a particular item of property, the debtor will legally be allowed to keep that property without any repercussions.
Under the federal U.S. Bankruptcy Code, each state is given discretion to decide which property and/or assets will be exempt after a debtor files for bankruptcy. According to this Code, a state may either elect to draft its own set of bankruptcy exemptions or a state may offer a debtor the option to choose between the federal exemption statute or their own state’s exemption laws.
It should be noted, however, that if both options are provided in a particular state, then a debtor must pick one set of guidelines to comply with when requesting a bankruptcy exemption. In other words, a debtor will not be allowed to combine the federal and state exemption statutes to increase their chances of receiving a more desirable outcome (e.g., protecting the maximum amount of property from assets). Instead, they must select one and follow the requirements.
Specifically, the state of New Mexico happens to be a jurisdiction wherein a debtor will be able to choose whether they want to follow the federal or their state’s exemption laws. Thus, if you are in the process of filing for bankruptcy, you should talk to your lawyer to find out which set of bankruptcy exemptions may be better suited to your personal situation.
As of 2021, some current bankruptcy exemptions in the state of New Mexico include the following:
- Homestead exemption: In New Mexico, a debtor can protect a certain amount of equity that they have in property that is used as a primary residence (i.e., their home). A person may be able to protect up to a $60,000 in value of a dwelling being used as their primary residence. If a debtor is filing a joint petition for bankruptcy along with their spouse, then this value may increase to twice that amount (i.e., $120,000 for joint bankruptcy filings).
- Personal property exemptions: One unique fact about New Mexico exemption laws is that a debtor will be provided an unlimited exemption for personal property unless a specific exception applies. For instance, a debtor may only exempt up to $2,500 for jewelry and up to $4,000 for a motor vehicle. However, household items, such as books, furniture, clothing, medical devices, co-op shares, machinery, and so forth may qualify for an unlimited exemption.
- Wage exemptions: Depending on the circumstances, a debtor may be exempt for up to 75% of earned and unpaid wages. The bankruptcy court may increase this percentage if a debtor meets the threshold required to qualify as a low-income debtor.
- Tools of the trade exemptions: Tools of the trade, such as books, inventory, and/or actual tools, may be protected for up to $1,500 in value.
- Insurance exemptions: Any unmatured life insurance policies, fraternal society benefits, benevolent association benefits for up to $5,000, and any benefits received through life, accident, or health insurance may be exempted.
- Pensions and retirement benefit exemptions: Some retirement funds in New Mexico may have an unlimited exemption. Other retirement funds that may be exempt either in full or in part under New Mexico exemption laws include ERISA support benefits, pensions paid to public school employees, standard IRAs or Roth IRAs for up to $1,245,475, and various other retirement account exemptions.
- Public benefit exemptions: Benefits, such as disability, VA benefits, social security, unemployment, public assistance, and/or federal income tax credits may also be exempt.
- Miscellaneous exemptions: Some other exemptions under the state statute may include property of a business partnership, certain forms of building materials or oil and gas equipment, crime victims’ reparation awards, awards for wrongful death suits, and up to $5,000 for benefits concerning a fraternal or benevolent association.
- Wildcard exemptions: A wildcard exemption may apply to real property if the entire portion for the homestead exemption was not used for their primary residency. However, the debtor will be restricted to $5,000 of that remaining portion. With the exception of straight cash, a debtor may also use a wildcard exemption for personal property of up to $500.
On the other hand, if a debtor chooses to file using the guidelines of the federal bankruptcy exemption statute, then the following property and/or assets may be eligible for an exemption:
- Homestead exemption: A debtor who follows the federal statute to apply for a bankruptcy exemption may be able to protect up to $25,150 of equity in their primary residence.
- Benefit exemptions: Some benefits that are typically exempt under the federal statute include unemployment benefits, social security benefits, benefits provided to veterans in the VA program, and/or various other benefits that fall under public assistance benefits.
- Retirement account exemptions: Any retirement accounts that are not taxed will be eligible for a full exemption. In contrast, retirement accounts like Roth IRAs or standard IRAs will be restricted to a maximum exemption of $1,362,800.
- Federal wildcard exemption: Any remaining amounts leftover after applying the homestead exemption will become part of the wildcard exemption, which can be used for any sort of property. In general, a debtor can get a wildcard exemption of $1,325, and an additional maximum amount of $12,575 of the unused portion of their homestead exemption.
- Personal property exemptions: Some other types of property that may qualify for an exemption under the federal statute include:
- A motor vehicle for up to $4,000;
- No more than $1,700 for jewelry;
- An extra $2,525 for tools required to perform a job or specific trade;
- A total of $13,400 for household items, such as clothing, musical instruments, crops, animals, or appliances, with a limit of $625 per household item; and
- The proceeds from an unmatured life insurance policy.
In addition, it is important to keep in mind that if a debtor is married and is filing a joint petition for bankruptcy with their spouse, then the amounts in the above list may be doubled.
Do I Need a Bankruptcy Lawyer?
Filing a petition for bankruptcy typically requires thorough knowledge of complicated federal bankruptcy regulations and state exemption laws, as well as compliance with complex legal procedures. Requirements related to state property exemptions make up a substantial portion of the filing stage and thus are considered to be one of the most important steps when an individual is filing for bankruptcy.
As previously mentioned, the reason why this step is so important is because if an individual either tries to claim or leaves out a certain property exemption, then it could result in their creditors seizing or taking away those assets. Given the strict requirements and often confusing regulations of bankruptcy exemptions, it is strongly recommended that you hire a local New Mexico bankruptcy lawyer immediately for further legal guidance on a bankruptcy-related matter.
An experienced bankruptcy lawyer who is eligible to practice in New Mexico can assist you in filing a petition for bankruptcy and can review which properties or assets may qualify for an exemption under the applicable state laws. Your lawyer will also be able to ensure that your assets and/or property is accurately divided for the purposes of exemption and can help you to protect against the seizure of certain assets.
In addition, your lawyer can answer any questions you may have about the bankruptcy process and can discuss which chapter of bankruptcy is most appropriate based on your financial circumstances. Your lawyer will be able to provide representation before a bankruptcy court as well, should it be necessary to resolve a particular bankruptcy or exemption issue.
Finally, since New Mexico permits a petitioner to choose which set of exemption guidelines will apply when they file for an exemption, your lawyer will be able to help you make the right choice in regard to this decision and can explain why you may want to choose state exemption guidelines over the federal ones, or vice versa.