An Albuquerque subcontractor sues a payment bond surety and a construction lender in Bernalillo County district court over an unpaid Santa Fe project balance. The general contractor then files Chapter 7 in Texas, and the surety counts ninety days from the order for relief and removes the case to federal court. Nobody asked the plaintiff.
The rules deciding whether a New Mexico case goes back are entirely federal, in 28 U.S.C. § 1334, § 1452, § 157, and Federal Rule of Bankruptcy Procedure 9027. A 2026 fight in Manhattan, One William Street Capital Master Fund Ltd. v. Wilmington Trust, National Association, No. 1:26-cv-01123 (S.D.N.Y.), raised the question after a Texas Chapter 7: the court is reported to have granted mandatory abstention and sent the case back to state court on June 5, 2026.
What happens to a Bernalillo County lawsuit when one defendant files bankruptcy in Texas?
Less than most people assume. 11 U.S.C. § 362(a)(1) stays a proceeding “against the debtor.” Those are the operative words, so claims against a solvent surety and lender keep moving while the claim against the contractor freezes.
Removal is the weapon. Section 1452(a) permits removal of any claim “to the district court for the district where such civil action is pending,” if that court has jurisdiction under § 1334. Section 1334(b) supplies it over proceedings arising under title 11, arising in, or related to a title 11 case, and that last category swallows commercial litigation between non-debtors.
Where does a removed New Mexico case land, and how fast must the notice be filed?
In the United States District Court for the District of New Mexico, not the bankruptcy court. In StoneX Commodity Solutions, LLC v. Bunkley, Adv. No. 23-1047-j (Bankr. D.N.M. Jan. 8, 2024), Chief Judge Robert H. Jacobvitz struck a removal notice filed there: § 1452(a) names the district court, and a contrary reading would “unconstitutionally undermine the district courts’ referral power.” Reference follows under Misc. No. 84-0324 (1984).
Rule 9027 sets two clocks. For a claim pending when the bankruptcy began, (a)(2) allows the longest of ninety days after the order for relief, thirty days after an order terminating a stay, or thirty days after a Chapter 11 trustee qualifies. A later claim gets thirty days under (a)(3). 28 U.S.C. § 1409 sends the estate’s small clawback suits to where the defendant resides.
How does the Tenth Circuit define related to bankruptcy jurisdiction?
Through Gardner v. United States (In re Gardner), 913 F.2d 1515 (10th Cir. 1990), which adopted the Third Circuit’s Pacor formulation. As this district’s bankruptcy court puts it, a proceeding is related if the outcome could alter the debtor’s rights, liabilities, options, or freedom of action in any way, or conceivably affect the estate.
Core versus related to is sorted under Personette v. Kennedy (In re Midgard Corp.), 204 B.R. 764 (10th Cir. BAP 1997). The § 157(b)(2) core list includes allowance or disallowance of claims, a trap for plaintiffs: in Sky Country Estates Prop. Owners Ass’n v. Sky Country Estates, LLC, Adv. No. 17-1069 (Bankr. D.N.M. Aug. 10, 2018), filing a proof of claim made the removed litigation core, defeating mandatory abstention. Section 157(b)(5) routes personal injury and wrongful death claims to a district court.
When must a federal court abstain under 28 U.S.C. § 1334(c)(2)?
Section 1334(c)(2) takes six showings, and five (a timely motion, a state law claim, a related-to but non-core proceeding, no federal jurisdiction other than § 1334, a pending state court action) are usually conceded. The sixth, a state forum that can timely adjudicate the case, decides the motion.
Section 1334(c)(1) is discretionary, and § 1452(b) permits remand on any equitable ground. Section 1334(d) bars appellate review of abstention rulings under subsection (c), excepting a refusal to abstain under § 1334(c)(2), and § 1452(b) says a remand order is “not reviewable by appeal or otherwise.” Tenth Circuit bankruptcy appeals already founder on mootness; here Congress removed review.
Was Your New Mexico Lawsuit Removed to Federal Court? Contact Us Now
How does a New Mexico party prove a case can be timely adjudicated in state court?
Courts weigh the state court’s backlog against the federal court’s, the issues’ complexity and each forum’s expertise, the bankruptcy case’s posture, and whether the state proceeding would prolong administration. The Tenth Circuit has not adopted that list. The closest guidance is Midgard‘s observation, quoted in Kitts v. Cashco, Inc., Adv. No. 18-1055-j (Bankr. D.N.M. July 31, 2019), that in a Chapter 7 timely adjudication is seldom significant.
The FY25 statistical addendum to the New Mexico Judiciary’s annual report gives the Second Judicial District a civil time to disposition of 200 days, an active pending age of 328 days, and a 96.6 percent clearance rate; Santa Fe’s First Judicial District, 330 days, 530 days, and 98.1 percent. The comparison is not to the bankruptcy docket alone: in a non-core proceeding that judge only proposes findings under § 157(c)(1), reviewed de novo by the district court.
Do the jury trial and consent problems help a motion to remand?
Granfinanciera, S.A. v. Nordberg, 492 U.S. 33 (1989), held that a person who has not filed a claim against the estate keeps a Seventh Amendment jury right when the trustee sues to recover allegedly fraudulent transfers. In Stern v. Marshall, 564 U.S. 462 (2011), § 157 allowed final judgment on a state law counterclaim but Article III did not. Wellness International Network, Ltd. v. Sharif, 575 U.S. 665 (2015), added that consent, knowing and voluntary, cures that.
Section 157(e) lets a bankruptcy judge conduct one only if specially designated by the district court and with the express consent of all parties. This district has that designation order, but unanimous consent is rare. Kitts applied the twelve equitable factors from In re Commercial Financial Services, Inc., 251 B.R. 414 (Bankr. N.D. Okla. 2000), treating state law predominance, forum shopping, and the jury right as favoring remand, and cited In re Telluride Income Growth, L.P., 364 B.R. 390 (10th Cir. BAP 2007), since § 1334(c)(1) reaches core and non-core matters.
How would this play out on a Santa Fe project?
Take a hypothetical. Mesa Verde Mechanical LLC, an Albuquerque subcontractor owed $1,480,000 on a Santa Fe medical office build, sues the general contractor, the payment bond surety, and the construction lender in Bernalillo County on January 20, 2026. The contractor files Chapter 7 in Texas on March 3, 2026, stopping the claim against it under § 362(a)(1) but not those against the surety and lender. On May 26, 2026, inside Rule 9027(a)(2)’s ninety-day window, the surety removes to the District of New Mexico, where it is referred under § 157(a). Mesa Verde moves to abstain June 15, 2026.
The accounting decides that argument, which is where an attorney and CPA earns the fee. The surety opposes remand by predicting a contribution claim the trustee must liquidate. A proof of claim is due seventy days after the order for relief under Federal Rule of Bankruptcy Procedure 3002(c), May 12, 2026 here, but 11 U.S.C. § 502(e)(1)(B) disallows a co-obligor’s contribution claim while it is contingent, and an unpaid surety holds exactly that. At a six cent distribution the $1,480,000 claim, once fixed, is worth about $88,800, which will not paralyze a Chapter 7.
| Route | Statute | Showing required | Appellate review |
|---|---|---|---|
| Mandatory abstention | 28 U.S.C. § 1334(c)(2) | Six elements, timely adjudication last | Barred, except refusals |
| Permissive abstention | 28 U.S.C. § 1334(c)(1) | Justice, comity, or state law respect | Barred by § 1334(d) |
| Equitable remand | 28 U.S.C. § 1452(b) | Any equitable ground | Barred by § 1452(b) |
| Jury trial, bankruptcy judge | 28 U.S.C. § 157(e) | Designation plus consent of all | Not applicable |
Frequently Asked Questions
Does my New Mexico lawsuit stop if one defendant files bankruptcy?
Not as to the other defendants. Under 11 U.S.C. § 362(a)(1) the petition stays proceedings against the debtor, and the paragraph says against the debtor. Claims against a solvent surety or lender continue. What interrupts the case is removal under 28 U.S.C. § 1452(a).
How long does a defendant have to remove a New Mexico case after a bankruptcy filing?
Federal Rule of Bankruptcy Procedure 9027 controls. For a claim pending when the bankruptcy began, subdivision (a)(2) allows the longest of ninety days after the order for relief, thirty days after an order terminating a stay, or thirty days after a Chapter 11 trustee qualifies.
What is mandatory abstention under 28 U.S.C. § 1334(c)(2)?
It requires a federal court to step aside rather than hear the case. The showings are a timely motion, a state law claim, a related-to but non-core proceeding, no federal jurisdiction other than § 1334, and a state forum that can timely adjudicate it.
Can a bankruptcy judge in New Mexico hold a jury trial?
Only narrowly. Under 28 U.S.C. § 157(e) a bankruptcy judge may conduct a jury trial if specially designated by the district court and with the express consent of all parties. The District of New Mexico has that designation order, but unanimous consent is rare.
Can I appeal an order sending my case back to New Mexico state court?
Generally no. Section 1452(b) says an order remanding a claim, or a decision not to remand, is not reviewable by appeal or otherwise by the court of appeals or the Supreme Court. Section 1334(d) adds a parallel bar for abstention rulings.
Does filing a proof of claim hurt my chance of getting the case remanded?
It can. In Sky Country Estates, Adv. No. 17-1069 (Bankr. D.N.M. Aug. 10, 2018), filing a proof of claim turned removed litigation into a core proceeding, and mandatory abstention under 28 U.S.C. § 1334(c)(2) reaches only non-core related-to proceedings. Sequencing matters.
How North Star Law Firm Can Help
North Star Law Firm handles the federal side of these disputes for New Mexico businesses: responding to a notice of removal and moving to abstain and remand under 28 U.S.C. § 1334(c) and § 1452(b). Phillip Zagotti, JD/CPA, is admitted before the United States District Court and Bankruptcy Court for the District of New Mexico, and brings a CPA’s read to the numbers behind a contingent contribution claim. The firm’s work spans bankruptcy, Chapter 7, Chapter 11, and preference and clawback defense, alongside New Mexico-licensed counsel on state law claims.
Removal deadlines run fast and the appellate door closes on most of these rulings. Readers facing a stay that reaches a spouse who never filed may find the firm’s automatic stay discussion useful. To discuss a removed lawsuit, contact North Star Law Firm.