If you’re considering filing for Chapter 7 bankruptcy, you might first want to know how much of your property you’ll be allowed to keep if you do decide to file. This answer will depend largely on what kinds of property you own at the time of filing, how much it is truly worth, and which of the bankruptcy “exemptions” you’ll be entitled to use. This article offers a discussion of the exemptions that might allow you to keep certain property once you’ve filed for Chapter 7 bankruptcy (see our article for more information regarding whether you qualify for chapter 7 bankruptcy).
State law and residency determine which set of bankruptcy exemptions an individual must use. Generally speaking if you’ve lived in a state for more than two years, then that State’s bankruptcy exemptions will apply.
Once you’ve filed for Chapter 7 bankruptcy, practically all your assets and property will then become property of the bankruptcy estate, with a few exceptions. After filing, a bankruptcy trustee will be appointed to your case, and given the power to sell your non-exempt assets in order to accumulate funds to pay your creditors for your outstanding debts. However, the fact that you have filed for bankruptcy does not necessarily mean that you will be made to give all your property away to your creditors.
Bankruptcy exemptions can allow you to retain a certain portion of your property so that you are able to make a fresh start after you’ve filed for bankruptcy. With Chapter 7 bankruptcy, if an asset qualifies as exempt, the bankruptcy trustee will not be able sell it in order to pay your debts. But, exactly how much property you’ll be able to keep after filing for Chapter 7 bankruptcy will depend on the value of the assets you own, and on which particular exemptions you qualify for. With exemptions, most people who file for Chapter 7 are generally able to keep all or the majority of their property; these type of cases are referred to as “no asset” Chapter 7 cases.
Every state, as well as the federal system, has its own rules regarding exemptions and what can be exempt. In some states, it is required that you apply only that state’s exemptions, while other states may offer you a choice between their exemption system and the system used at the federal level. What this means is that the specific amount of assets you’ll be able to protect in Chapter 7 bankruptcy will be dependent upon the state you file for bankruptcy in. New Mexico allows for the use of either the federal set of exemptions or New Mexico state exemptions.
Both the federal system and most states will permit you to retain a certain amount of equity in your home or personal property like your vehicle or your checking and savings accounts. In some states, an unlimited “homestead” exemption might even be available, and allow you to keep your house. Also, regardless of where you live, your individual household goods and your clothing can generally be considered exempt, provided they are not unusually valuable.
When you file for Chapter 7 bankruptcy, a bankruptcy trustee will oversee your case. That trustee will look at the value of your property when he or she is deciding whether or not to pursue the property in court, and sell it in order to pay your creditors. If you have any loans which secure your property, like a car loan or a home mortgage, that creditor’s lien will usually not be affected by the bankruptcy proceedings. So, the bankruptcy trustee will need to pay your creditor the amount of your loan from the sale proceeds of the property. For example, if you have a car worth $12,000 but there is a loan on it for $6,000, then the car is really only worth $6,000 to the bankruptcy trustee.
In this example, if you reside in a state with a car exemption of $6,000 or greater in place, then you need not be worried about a bankruptcy trustee selling your car in an attempt to pay your debts. However, if you live in a state that only allows a $2,000 vehicle exemption, then a bankruptcy trustee might be able to seize your and sell it. Using the proceeds of the sale, the bankruptcy trustee will then pay you the exemption to which you are entitled, which in this example is $2,000 minus the costs of the actual sale and the trustee’s commission, then the rest will be distributed among your creditors.
Remember that you may also combine some exemptions in an attempt to save your property from being sold. For example, certain states and the federal exemptions system have a sort of “wildcard” exemption which one can use to qualify any property as exempt. Think of it sort of as a freebie. Thus, if you live in a state that has only a $2,000 car exemption, but also offers a wildcard exemption of $5,000, then you could combine the two in order to exempt the equity in your vehicle up to an amount of $7,000, and hopefully save it from being sold.
Even if after applying state or federal exemption rules you cannot save a particular asset, the bankruptcy trustee might nonetheless abandon the property and choose not to sell it. This might occur because the cost or fees presented by selling the property will outweigh the value remaining on the property, leaving nothing to pay your creditors with. If the bankruptcy trustee does abandon property, you are entitled to keep the property.
Below is a list of common New Mexico bankruptcy exemptions, as well as the federal exemptions, because New Mexico allows debtors to choose between either set. For New Mexico clients we commonly find that the federal exemptions are better unless there is a lot of equity in a homestead. For help on deciding which set of bankruptcy exemptions to use be sure to contact an Albuquerque bankruptcy attorney.
|ASSET||EXEMPTIONS||NMSA 1978 SECTION|
|Homestead (your home)||Married, widowed, or supporting another may claim real property up to $60,000 (joint owners can double this)||42-10-9|
|Insurance||- Benevolent Association benefit up to $5,000|
- Fraternal benefit society benefits
- Life, accident, health or annuity benefits, withdrawal or
- cash value, if beneficiary is a New Mexico citizen
|42-10-4, 59A-44-18, 42-10-3|
|Miscellaneous||- Ownership interest in an unincorporated association|
- Property of business partnership
- Workers’ Compensation
|Pensions||- Pension or retirement benefits|
- Public school employees
|42-10-1, 42-10-22, 2-11-42A|
|Wages||Minimum of 75% of your earned but unpaid wages, or more for low income debtors in bankruptcy||35-12-7|
|General||- $500 worth of any personal property|
- $2,000 worth of any property in lieu of your homestead
|ASSET||EXEMPTIONS||11 U.S.C SECTION|
|Homestead (your home) / Real Property||Up to $22,975||522(d)(1)|
|One (1) Motor Vehicle||Up to $3,675||522(d)(2)|
|Household Goods and Clothing||Up to $12,250||522(d)(3)|
|Jewelry||Up to $1,550||522(d)(4)|
|Unused homestead value (aggregate of interest in any property, not exceeding $1,075 + up to $10,125 of unused value from homestead exemption)||Up to $11,200||522(d)(5)|
|Tools of your trade||Up to $2,300||522(d)(6)|
|Life insurance policies (Unmatured)||Exempt if needed for support||522(d)(7)|
|Life insurance cash/loan value||Up to $12,250||522(d)(8)|
|Prescribed health aids||Exempt if needed for support||522(d)(9)|
|Social Security, unemployment, public assistance,veterans’ benefits, disability, alimony, and child support.|
- Exempt if needed for support
|Wrongful death, life insurance proceeds, and loss of future earnings payouts|
- Exempt if needed for support
|Retirement accounts (as defined by the Internal Revenue Code)||Up to $1,245,475||522(d)(12)|