Bankruptcy ✦ Chapter 7
The Debt Stops the Day You File.
Chapter 7 is the fastest form of debt relief federal law offers. Most New Mexico cases are over in about four months, the unsecured debt is gone, and because New Mexico rewrote its exemption law in 2023, most filers keep everything they own. North Star Law Firm handles Chapter 7 statewide for a flat fee, with a tax discharge analysis no ordinary bankruptcy firm can run.
Overview
What does Chapter 7 actually do?
Two things happen the moment your petition reaches the United States Bankruptcy Court for the District of New Mexico. The automatic stay of 11 U.S.C. § 362 takes effect, and every garnishment, levy, repossession, lawsuit, and collection call has to stop that day. A trustee is then appointed to look for property worth selling for creditors. In the great majority of New Mexico consumer cases there is none, because the exemptions cover it all. Those cases end with a discharge order under 11 U.S.C. § 727 wiping out credit cards, medical bills, personal loans, payday loans, deficiency balances, and older income taxes that meet the timing rules.
- Collections, garnishments & lawsuits stop at filing (11 U.S.C. § 362)
- Typical case: 90 to 120 days from petition to discharge
- Flat-fee representation, quoted before you commit
- Tax discharge analysis from your actual IRS transcripts
- Choice of New Mexico or federal exemptions, whichever protects more
- Remote representation anywhere in New Mexico
Eligibility
Do you pass the means test?
Chapter 7 eligibility runs through the means test of 11 U.S.C. § 707(b). Step one compares your household income against the New Mexico median for a household your size. At or below the median, you presumptively qualify. These are the figures the U.S. Trustee Program applies to New Mexico cases filed on or after July 15, 2026:
| Household size | New Mexico annual median income |
|---|---|
| 1 person | $66,235 |
| 2 people | $79,574 |
| 3 people | $88,041 |
| 4 people | $98,602 |
| Each additional person | add $11,100 |
Earning above the median is not a disqualification. It just triggers the long-form calculation, where allowed living expenses, secured payments, and priority taxes are netted against income. That form is arithmetic with legal consequences, and it is where an attorney-CPA earns the fee. If your debts are mostly business debts rather than consumer debts, the means test does not apply at all.
Your Property
What do you keep? Almost always, everything.
Exemption law decides what is off limits to the trustee, and New Mexico filers get a choice under 11 U.S.C. § 522(b): the federal exemption scheme or the New Mexico exemptions, whichever protects more. The New Mexico amounts were raised dramatically effective July 1, 2023, and now adjust for inflation in odd-numbered years.
| Property | New Mexico exemption | Statute |
|---|---|---|
| Homestead (includes mobile homes and RVs used as a dwelling) | $150,000 per owner | NMSA 1978, § 42-10-9 |
| Household goods & furnishings | $75,000 | NMSA 1978, § 42-10-1 |
| Motor vehicle | $10,000 | NMSA 1978, § 42-10-1 |
| Tools of the trade | $15,000 | NMSA 1978, § 42-10-1 |
| Jewelry | $5,000 | NMSA 1978, § 42-10-1 |
| Wildcard (any personal property) | $15,000 | NMSA 1978, § 42-10-1 |
| In lieu of homestead (if you don’t own a home) | $15,000 additional | NMSA 1978, § 42-10-10 |
| Retirement accounts, pensions, IRAs | Generally fully protected | NMSA 1978, § 42-10-1; 11 U.S.C. § 522 |
A married couple who jointly own their home can protect up to $300,000 of equity. After the 2023 amendments it is rare for a New Mexico Chapter 7 filer to lose any property at all, and we will tell you before filing if you are the exception.
Can Chapter 7 wipe out IRS debt?
Sometimes, and this is the analysis most bankruptcy firms get wrong because they are not tax practitioners. Income taxes discharge only if the return was due more than three years before filing (11 U.S.C. § 507(a)(8)(A)(i)), the return was actually filed more than two years before the petition (§ 523(a)(1)(B)), any assessment is more than 240 days old (§ 507(a)(8)(A)(ii)), and there was no fraud or willful evasion (§ 523(a)(1)(C)). Prior offers in compromise, CDP hearings, and earlier bankruptcies pause those clocks, so the only honest answer comes from reading your IRS account transcripts. We pull them before every filing. Sometimes the right advice is to wait sixty days so a $40,000 tax year clears the three-year rule, and that advice is free here.
Some debts survive any Chapter 7: domestic support, student loans absent an undue-hardship showing, recent income taxes, trust-fund payroll taxes, and debts incurred by fraud. If your debt is concentrated there, a Chapter 13 plan or a direct IRS resolution strategy may serve you better, and because this firm does both, you will hear an honest comparison instead of a pitch.
The Attorney-CPA Difference
One professional. Both halves of the problem.
- Means test and exemption analysis completed before you decide anything
- IRS transcript review to catch dischargeable tax years and timing traps
- Statewide remote representation: New Mexico is one bankruptcy district, and 341 meetings are held by phone or video
- Flat fee, start to finish, including the 341 meeting of creditors
Questions & Answers
Chapter 7 questions, answered
Will I lose my house?
Almost certainly not, if your equity fits within the $150,000 per owner homestead exemption and you stay current on the mortgage. The discharge wipes out your personal liability, but a consensual mortgage lien survives the case. Keep paying and you keep the house.
Will filing stop a garnishment that is already running?
Yes. The automatic stay stops wage garnishments and bank levies the day the petition is filed, and that includes most IRS collection. Employers and banks comply quickly once they receive notice of the case.
How much does Chapter 7 cost in New Mexico?
A flat fee quoted at the free consultation, plus the court filing fee and the required credit counseling courses. No hourly billing and no surprises, and you will know the full number before you commit to anything.
I filed bankruptcy years ago. Can I file again?
Eight years must pass between Chapter 7 discharges under 11 U.S.C. § 727(a)(8). Prior cases can also shorten the automatic stay in a new filing, so bring your full history to the first call and we will map the timing.
My debts are from a failed business. Does that change anything?
It helps you. When debts are primarily business debts the means test does not apply, so income is no barrier to filing. If the business itself is worth saving rather than winding down, look at Subchapter V before deciding anything.
A fresh start is not failure. Find out if you qualify.
Free means test, exemption review, and tax transcript analysis with an attorney-CPA. One conversation and you will know exactly what Chapter 7 would and would not do for you.