Law Offices of
Deborah M. DeMack
Committed to Fight for your Consumer Rights!
Frequently Asked Questions About Bankruptcy
Q. #1 Who can file for bankruptcy?
In general, any person or business can file for bankruptcy. There is no minimum amount of debt required to file for bankruptcy. However, in most cases, a person who does file for bankruptcy usually owes considerably more than he or she is able to pay.
Q. #2 What debts are eliminated in bankruptcy?
In a Chapter 7 bankruptcy, most if not all consumer debts are eliminated. Thus for example, credit card debt, medical bills, payday loans and other unsecured debt is eliminated.
Q. #3 Are there any debts that are not eliminated by bankruptcy?
Yes. Domestic support obligations such as child support or alimony payments are not erased in bankruptcy. Also, some taxes are not dischargeable in bankruptcy although some are. Further, with rare exception, student loans cannot be discharged in bankruptcy.
With respect to secured debts such as mortgages and liens on cars, technically speaking, your personal liability for secured debts is eliminated up. However, if you want to keep your home and car, you’ll have to continue to pay on the loan in accordance with the loan agreement. Otherwise, you might have to surrender the property to the creditor if you fall into default on payments.
Q. #4 What property can I keep if I file for bankruptcy?
In a bankruptcy proceeding, there are exemptions which apply to property, both real and personal, meaning, the property is protected from creditors, up to a certain value. There are exemptions for cars, household goods, clothing and personal effects, jewelry, tools of the trade, pension and retirement funds, life insurance and more. The exact dollar amount of the exemption depends on the type of property and whether you choose to use state exemptions or federal exemptions. However, the overwhelming majority of everyday consumers who file for Chapter 7 bankruptcy (in New Mexico) are able to keep all of their personal property and their homes.
Q. #5 Can creditors take away my pension? Or my 401K or IRA accounts?
No. Pension funds, retirement benefits, and retirement accounts such as 401K and IRA accounts are 100% protected under New Mexico law with no limit. Under federal law, up to $1.172 million (approximately) is exempt, subject to need.
Q. #6 What about my Social Security or VA benefits? Can creditors take that?
No. Under both state and federal law, Social Security benefits, VA benefits, public assistance payments (such as food stamps or EBT) , alimony, and unemployment benefits are 100% protected.
Q. #7 I am married, and my spouse does not want to file with me. Can I still file for bankruptcy?
Yes. There is no requirement that both husband and wife file together, although these is one advantage if both file: Exemption amounts are doubled. If only one spouse owes most of the debt, it may be appropriate for only that spouse to file. However, if a married couple has joint debts, since the non-filing spouse is jointly and equally responsible for those debts, creditors may demand payment from the non-filing spouse. Therefore, it may make financial sense for both spouses to file together.
Q. #8 How will bankruptcy affect my credit?
Under federal law, a bankruptcy may appear on a persons’ credit for up to 14 years. However, most credit reporting agencies report on a bankruptcy only up to 10 years. Surprisingly, however, most people's credit scores improve after filing a bankruptcy, anywhere from 20 to 120 points. The reason is, once people receive their discharge from bankruptcy, and most, if not all of their debts are erased, their credit scores improve, sometimes dramatically.
Q. #9 How soon after bankruptcy can I get credit?
Usually, the first year after filing for bankruptcy is the most difficult period. And if you are offered credit, higher interest rates may apply. However, with fewer bills to pay, most people are able to rebuild their credit quickly. Many people are in a better financial position after bankruptcy than before. So, if you pay your bills on time, you can get credit again, often within two years or less after receiving your discharge from bankruptcy.
Q. #10 I previously filed for bankruptcy. Can I still file for bankruptcy?
Yes, but there are restrictions on how often you can file for bankruptcy. If you previously filed for bankruptcy under Chapter 7 and received a discharge, you must wait 8 years before you can file again for Chapter 7. If you previously filed for Chapter 13, you must wait 2 years before you can file again under Chapter 13. If you previously received a discharge under Chapter 7, 11 or 12, you can file under Chapter 13 after 4 years.