Category: Bankruptcy

A private equity buyer offered $1.00 for 90 percent of a South Dakota snack food company, plus promises to pay its vendors and recapitalize it. The deal never closed. The buyer sued for specific performance, and the owner filed Subchapter V. On August 10, 2026, the Eighth Circuit Bankruptcy Appellate Panel affirmed the order letting him reject the agreement in Kanyon Holdings, LLC v. Dandurand (In re Dandurand), No. 25-6010.

For New Mexico owners, the power to reject a contract in bankruptcy is real. It is also narrower than many assume, and here it runs on Tenth Circuit law and the deadlines in 11 U.S.C. § 365.

What did the Dandurand courts decide, and is the case still on appeal?

Chief Judge Laura L. Kulm Ask (No. 24-40401, Bankr. D.S.D. May 23, 2025) found the agreement executory and approved rejection; the panel affirmed. The court found the buyer owed more than the $1.00: it had promised to pay vendors and produce a financing plan before closing, both material and unperformed at filing. The document never defined that plan, and its closing clause cited a cross-reference that printed as a software error message, opening the door to outside evidence under South Dakota law.

Rejection passed business judgment because it kept the owner employed and funding his confirmed plan, income a two-year noncompete starting at closing would have threatened. The buyer later withdrew its proof of claim, and no rejection-claim deadline was ever set. No further appeal was located on review.

How does the Tenth Circuit decide whether a contract is executory?

In In re Baird, 567 F.3d 1207 (10th Cir. 2009), the Tenth Circuit formally adopted the Countryman definition: both sides’ obligations must be so far unperformed that either side’s failure to finish would be a material breach excusing the other. There, a doctor’s leftover duties under a paid, expired malpractice policy were ministerial, so it was not executory.

In In re SPOverlook, LLC, No. 15-13018 (Bankr. D.N.M. June 14, 2016), Judge Thuma held an East Mountains developer’s settlement with its homeowners association executory because, on the petition date, the developer still owed a deed and the association a release. Materiality comes from the state law governing the contract, and under Mark V, Inc. v. Mellekas, 1993-NMSC-001, 114 N.M. 778, New Mexico courts may weigh surrounding circumstances even in deciding whether contract language is ambiguous.

A Santa Fe restaurant’s premises lease needs no Countryman analysis, because § 365 reaches unexpired leases directly. A Las Cruces distributor’s exclusive supply agreement with minimum purchases is usually executory. If a buyer has paid in full and the seller owes only a stock power, the buyer holds a claim instead.

Stuck in a Contract Your New Mexico Business Cannot Perform? Contact Us Now

When can a New Mexico debtor reject a contract in bankruptcy, and which clocks run?

Courts defer to the debtor’s business judgment, the standard used for “the ordinary executory contract,” NLRB v. Bildisco & Bildisco, 465 U.S. 513, 523 (1984). In Chapter 7, § 365(d)(1) deems an executory contract or a residential or personal property lease rejected if the trustee does not act within 60 days after the order for relief. In In re McCune, No. 20-12326 (Bankr. D.N.M. Apr. 5, 2024), Judge Jacobvitz held that deemed rejection of a home purchase contract was a breach, not a termination.

In Chapters 11, 12, and 13, § 365(d)(2) allows a decision any time before confirmation unless the court sets a shorter period. Subchapter V is no different, since § 1181(a) does not switch off § 365 or § 1123(b)(2). Chapter 13 debtors use § 1322(b)(7).

Section 365(d)(3) requires timely postpetition performance of a nonresidential real property lease, with extensions only within the first 60 days. Under § 365(d)(4), the lease is deemed rejected and the premises surrendered unless the debtor acts by the earlier of 120 days after the order for relief or confirmation, plus one 90-day extension for cause; more requires the landlord’s prior written consent “in each instance.” In Chapter 11, § 365(d)(5) keeps personal property lease payments current after day 60.

What can rejection and assumption not accomplish?

Assuming a contract in default requires a cure and adequate assurance of future performance under § 365(b)(1), and § 365(c) blocks assuming loan commitments or contracts that applicable law makes personal to the debtor. Section 365(e)(1) disables bankruptcy termination clauses and § 365(f) overrides anti-assignment clauses.

Rejection does not rewrite history. Mission Product Holdings, Inc. v. Tempnology, LLC, 587 U.S. 370 (2019), holds that rejection “has the same effect as a breach of that contract outside bankruptcy” and cannot rescind rights already granted. Applying it in In re S-Tek 1, LLC, No. 20-12241 (Bankr. D.N.M. July 12, 2021), Judge Jacobvitz ruled that a debtor paid $30,000 hours before filing could not reject the settlement to revive released claims.

Where does rejection leave the other side of the contract?

After rejection, § 365(g) dates the breach to just before the petition, and § 502(g)(1) makes the damages a prepetition claim. A buyer wanting the business itself fares no better, because § 101(5)(B) defines “claim” to include an equitable remedy for breach that gives rise to a right to payment.

The claim deadline is where counterparties get hurt. Rule 3002(c)(4) allows a rejection claim “within the time set by the court,” and Rule 3003(c)(3) keeps that path open in Chapter 11 after the general bar date. In In re Amerivision Communications, Inc., BAP No. WO-05-106 (B.A.P. 10th Cir. Aug. 23, 2006), a plan rejected every contract not specifically assumed, and the vendor missed the plan’s 30-day claim window. Rejection frees only the debtor; under § 524(e), even a discharge leaves guarantors liable.

What should a New Mexico owner take from Dandurand before signing?

The firm’s view is that a signed document is not fate: an owner can reject a contract in bankruptcy while both sides still owe material performance. Escape is costly, though. The Dandurand owner won an evidentiary hearing that turned on whose memory of telephone calls the judge believed, then defended it on appeal for over a year. A Hobbs or Farmington owner signing under creditor pressure is better protected when the price and every closing condition are written down before signature.

How would the § 365 deadlines run for a Roswell oilfield services company?

A Roswell company files Subchapter V on Tuesday, January 12, 2027, which under § 301(b) is the order for relief. It has a shop lease at $9,000 a month with 84 months left, three equipment leases, a service agreement with a Permian Basin operator, and an unclosed sale of a subsidiary.

Shop rent from January 12 forward must be paid on time, with deferral possible only through Saturday, March 13, 2027. Day 120 is Wednesday, May 12, 2027, or Tuesday, August 10, 2027 with the extension. The plan is due Monday, April 12, 2027 under § 1189(b), and confirmation can close the lease window early.

Under NMSA 1978, § 55-1-203, a noncancelable equipment lease with a nominal purchase option is a security interest, not a § 365 lease. The service agreement is likely executory, and a clause ending it because of the filing fails under § 365(e)(1). The subsidiary sale resembles Dandurand.

If the shop lease is rejected with $18,000 of unpaid rent, § 502(b)(6) caps the claim at rent for the greater of one year or 15 percent of the remaining term (not over three years), plus unpaid rent. Fifteen percent of 84 months is 12.6 months, so the cap is $113,400 plus $18,000, or $131,400, against $756,000 of remaining rent. The firm’s post on commercial tenant bankruptcies goes deeper.

Contract	How § 365 treats it	Controlling rule	Key date
Shop lease	Nonresidential real property lease	§ 365(d)(3), (d)(4)	May 12, 2027, or Aug. 10 if extended
Equipment leases	True leases only; financed sales are collateral	§ 365(d)(2), (d)(5)	Payments current from March 13, 2027
Operator service agreement	Likely executory	§ 365(d)(2), (e)(1)	Before confirmation unless compelled
Subsidiary sale	Probably executory	§ 365(a), (g)	Before confirmation
Subchapter V plan	Sets the outer limit	§ 1189(b)	April 12, 2027

Frequently Asked Questions

Can a business reject a contract it already signed in a New Mexico bankruptcy?

Yes, if the contract is executory or an unexpired lease and the court approves. Under In re Baird, the Tenth Circuit asks whether both sides still owe performance significant enough that failing to finish would be a material breach. If the other side has fully performed, the debtor simply owes a claim.

How long does a debtor have to decide on a commercial lease?

Under 11 U.S.C. § 365(d)(4), until the earlier of 120 days after the order for relief or plan confirmation. The court may grant one 90-day extension for cause before the first period ends, and more time requires the landlord’s prior written consent. Otherwise the lease is deemed rejected and the premises must be surrendered.

Does rejecting a contract cancel it?

No. The Supreme Court held in Mission Product Holdings v. Tempnology that rejection operates as a breach, not a rescission. The debtor stops performing and the other side holds a prepetition damages claim, but rights already granted survive. New Mexico bankruptcy judges apply the same rule.

Can the other party force the debtor to decide sooner?

Yes. In Chapters 11, 12, and 13 the debtor may ordinarily wait until confirmation, but under § 365(d)(2) any party to the contract may ask the court to order a decision within a specified time. Landlords of nonresidential property also receive timely postpetition rent under § 365(d)(3).

What happens to my personal guaranty if my company rejects the lease?

Rejection does not release it. Rejection is the company’s breach and shapes only the landlord’s claim against the company. The guarantor’s liability is governed by the guaranty itself, and § 524(e) provides that a debtor’s discharge does not affect the liability of any other entity on the debt.

How North Star Law Firm Can Help

North Star Law Firm’s bankruptcy practice represents New Mexico business owners deciding which leases and contracts to keep in Subchapter V and Chapter 11 cases, and counterparties protecting their claims when the other side files.

Phillip Zagotti, JD/CPA, is admitted to the U.S. District Court and the U.S. Bankruptcy Court for the District of New Mexico. Owners choosing a chapter can start with the firm’s field guide to business bankruptcy chapters or its post on Subchapter V eligibility. The firm works alongside New Mexico-licensed counsel on state-law questions. To review a contract or lease, contact North Star Law Firm.

A Portales dairy or Mesilla Valley pecan grower that sells land to survive gets two bills: the lender’s, and next April’s tax on the gain. Chapter 12 bankruptcy in New Mexico is the one place Congress wrote a rule for that second bill: 11 U.S.C. § 1232 turns the tax on a sale of farm property into an ordinary unsecured claim that can be discharged.

Who qualifies for Chapter 12 bankruptcy in New Mexico?

Only a family farmer “with regular annual income” may file Chapter 12 under 11 U.S.C. § 109(f). For an individual or couple, § 101(18) requires debt under the cap, at least half of noncontingent, liquidated debt arising from farming, and more than half of gross income from farming in the prior year or in each of the second and third prior years. Section 101(21) includes dairy farming and ranching.

The Family Farmer Relief Act of 2019 set the cap at $10,000,000, and indexing raised it to $12,562,250 for cases filed on or after April 1, 2025 (90 Fed. Reg. 8941). H.R. 7730, which cleared Congress on September 28, 2026 and awaits the President, changes only the Subchapter V and Chapter 13 limits.

In In re Roberts, No. 18-11927-t11 (Bankr. D.N.M. Dec. 19, 2019), Curry County farmers trapped in Chapter 11 by the old cap converted after the increase. Under First National Bank of Durango v. Woods, 743 F.3d 689 (10th Cir. 2014), a loan is farm debt if its proceeds went directly into the farming operation.

What does a § 1206 sale do that a § 363 sale cannot?

Sales before a plan run under 11 U.S.C. § 363(b), and § 363(f) allows a free-and-clear sale on only five conditions. In Clear Channel Outdoor, Inc. v. Knupfer (In re PW, LLC), 391 B.R. 25 (B.A.P. 9th Cir. 2008), the panel reversed an order stripping an underwater junior lien, holding § 363(f)(3) unavailable when the price does not exceed the secured claims.

Section 1206 removes that veto in Chapter 12 for “farmland, farm equipment, or property used to carry out a commercial fishing operation,” with “the proceeds of such sale” remaining subject to the lien. The lender may still credit bid under § 363(k), and § 363(m) protects good-faith buyers, as the firm’s post on mootness in Tenth Circuit bankruptcy appeals explains.

A dairy herd is neither farmland nor equipment, so selling the cows free of a lien still runs through § 363(f). Under NMSA 1978, § 72-5-23, irrigation water is appurtenant to the land, and severing it takes State Engineer approval. A federal grazing permit creates no “right, title, interest, or estate” in the land under 43 U.S.C. § 315b, and BLM preferences transfer only with agency approval, per Stewart v. Kempthorne, 554 F.3d 1245 (10th Cir. 2009). No Tenth Circuit or D.N.M. decision on permits as estate property was located.

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When does selling under a Chapter 12 plan beat a § 1206 motion?

A plan may provide for selling “all or any part of the property of the estate” under § 1222(b)(8), and In re Mongeau, 633 B.R. 387 (Bankr. D. Kan. 2021), read that provision to allow a full liquidation and found a Kansas couple who wound down before filing still eligible. Under § 1225(a)(5), a secured lender accepts, keeps its lien and receives at least the value of its allowed claim, or gets its collateral. For retained land, the rate is commonly argued under Till v. SCS Credit Corp., 541 U.S. 465 (2004), a Chapter 13 case whose plurality started from prime and added a risk premium.

Feasibility under § 1225(a)(6) requires reasonable assurance, not certainty; in In re Bright Harvesting, Inc., No. 15-11178 (Bankr. D.N.M. Dec. 4, 2015), a Melrose wheat and custom-harvest family won confirmation, with amendments, over its lender’s objection. A confirmed plan binds every creditor under § 1227. For a family farmer, 28 U.S.C. § 586(e) limits the standing trustee’s fee to 10 percent of the first $450,000 of plan payments and 3 percent after, and § 1226(c) lets the plan provide for payment other than through the trustee. No published Tenth Circuit decision on Chapter 12 direct payments was located.

What tax does a farm or ranch sale actually trigger?

Land used in the business for over a year is § 1231 property, as are dairy cattle held 24 months or more, and net § 1231 gain is taxed as long-term capital gain. Equipment gain up to prior depreciation is ordinary income under § 1245. Installment reporting under § 453 defers gain, but § 453(i) forces recapture into the sale year.

New Mexico taxes the same gain under NMSA 1978, § 7-2-3, at 5.9 percent on joint income above $315,000 under § 7-2-7. Section 7-2-34 allows the greater of $2,500 or 40 percent of up to $1,000,000 of gain “from the sale of a business,” a phrase it leaves undefined. Livestock sales are exempt from gross receipts tax under § 7-9-18, and § 7-9-62 halves the tax base on farm implements.

How did Hall v. United States leave farmers holding the tax bill?

Lynwood and Brenda Hall sold their farm in Chapter 12 and faced a $29,000 IRS claim on the gain. A 2005 provision, then § 1222(a)(2)(A), let plans treat such claims as nonpriority. In Hall v. United States, 566 U.S. 506 (2012), a 5-4 Court held the postpetition tax was not “incurred by the estate” under § 503(b), because 26 U.S.C. § 1399 makes a Chapter 12 estate no separate taxpayer. The tax was neither collectible in the plan nor dischargeable.

What does § 1232 do with the tax on a New Mexico farm sale?

Congress responded with section 1005 of the Bankruptcy Judgeship Act of 2017, Division B of Pub. L. 115-72. Section 1232(a) reaches any unsecured governmental claim arising, before the petition or after it but before discharge, from the “disposition of any property used in the debtor’s farming operation.” That claim is treated as prepetition and unsecured, loses § 507 priority, must be provided for in the plan, and is discharged under § 1228.

Section 101(27) defines “governmental unit” to include a State, so the Taxation and Revenue Department’s claim is covered too. When a postpetition return shows the claim, § 1232(d) requires notice at the address listed under § 505(b)(1), here the court’s register of governmental addresses, and the agency then has 180 days to file.

How does the math work for a Roosevelt County dairy?

A hypothetical Portales couple owing $9 million sells, in the first plan year, 320 acres (basis $600,000, price $2,400,000) and equipment (basis $150,000, price $700,000, cost above price). Assume no buildings, no prior § 1231 losses, an assumed 20 percent federal rate on the $1,800,000 land gain and 35 percent on the $550,000 of recapture. Federal tax is about $552,500; New Mexico at 5.9 percent, with only the $2,500 deduction, adds about $138,500. Total: roughly $691,000.

In Chapter 12, at an 8 percent unsecured dividend, the two agencies share about $55,000 and the rest is discharged. In Chapter 11, 26 U.S.C. § 1398 makes an individual’s estate a separate taxpayer, the federal tax is an administrative expense under § 503(b)(1)(B), and § 1129(a)(9)(A) demands cash on the effective date absent IRS agreement. Subchapter V is closed at $9 million; its limit is $3,424,000, or $7,500,000 if H.R. 7730 is signed. A smaller dairy there may pay administrative claims over time under § 1191(e), but in full. Roberts held that administrative claims keep that status after conversion, which argues for settling the chapter question before the sale closes.

Issue	Chapter 12	Chapter 11 (individual)	Subchapter V
Debt limit	$12,562,250	None	$3,424,000
Free-and-clear tool	§ 1206 for land, equipment	§ 363(f) or plan	§ 363(f) or plan
Tax on sale gain	Unsecured, dischargeable	Administrative expense	Administrative expense
Example tax paid	About $55,000	$552,500 federal, up front	Not eligible at $9M

Frequently Asked Questions

Can a New Mexico dairy with $9 million of debt file Chapter 12?

Yes, if it meets the rest of § 101(18). For cases filed since April 1, 2025, the cap is $12,562,250. At least half of the liquidated debt must come from farming, and farm income must exceed half of gross income in the prior year or in each of the two years before.

Does § 1206 let a farmer sell cattle free and clear of the lender’s lien?

No. Section 1206 covers farmland, farm equipment, and commercial fishing property. A dairy or cow-calf herd is none of those, so selling the animals free of a lien over objection must satisfy one of the five conditions in § 363(f) or happen under a confirmed plan.

Is the capital gains tax on a farm sale in Chapter 12 always discharged?

No. Section 1232 covers claims arising before discharge, and the debtor generally must finish the plan to receive a § 1228 discharge. Gain recognized after discharge, such as later installment payments on a seller-financed sale, falls outside the statute and is owed in full.

Does § 1232 cover New Mexico state income tax on the sale?

Yes. Section 1232 applies to any “governmental unit,” and § 101(27) defines that term to include a State and its departments. A Taxation and Revenue Department claim on the sale gain is treated like the IRS claim: unsecured, without priority, and dischargeable on completion.

What if the farm was sold before the Chapter 12 was filed?

Section 1232(a) reaches claims arising before the petition as well as after, with no look-back period, so an otherwise priority tax can lose priority. The debtor must still qualify as a family farmer on the filing date, and under In re Mongeau a prepetition wind-down alone does not defeat that.

How North Star Law Firm Can Help

North Star Law Firm represents farm and ranch families weighing Chapter 12 bankruptcy in New Mexico against other bankruptcy options before a land or equipment sale, and models the tax the sale will generate. The firm also handles Chapter 11 and Subchapter V cases and business sale tax structuring.

Phillip Zagotti, JD/CPA, is admitted to the U.S. District Court and the U.S. Bankruptcy Court for the District of New Mexico. Related reading: the firm’s guide on which bankruptcy chapter fits a New Mexico business and its post on 1031 exchanges for ranches and water rights. The firm works alongside New Mexico-licensed counsel on state-law questions. To discuss a sale, contact North Star Law Firm.

A $310,000 judgment against a Farmington oilfield services company is worth what the company has left, and if the owners took $400,000 in distributions the year before it stopped paying vendors, that may be nothing. The money still exists, though, and the question is who can go get it.

Colorado’s Supreme Court answered part of that in 2013, not the way creditors hoped, and New Mexico’s LLC Act points the same way. Bankruptcy is usually the better route.

What did the Colorado Supreme Court hold in Weinstein?

In Weinstein v. Colborne Foodbotics, LLC, 2013 CO 33, 302 P.3d 263 (Colo. 2013), the court held that “absent express statutory authority,” a creditor cannot bring the unlawful distribution claim created by Colo. Rev. Stat. § 7-80-606, because the claim belongs to the company. An insolvent LLC’s managers, it added, do not owe creditors the fiduciary duty that insolvent corporations’ directors do, citing § 7-80-705.

Section 7-80-606(3) also ends a member’s exposure after three years. The case still stands: Justia’s current Colorado code (2023 edition) keeps both section numbers, and the Colorado bankruptcy court cited Weinstein without qualification in Signia, Ltd. v. Male Excel Medical, P.A. in May 2025.

Can a creditor sue New Mexico LLC members directly for a wrongful distribution?

Not under the LLC Act. NMSA 1978, § 53-19-26 (2025 edition on Justia) bars a distribution that leaves the company unable to pay debts as they come due, or with total assets at fair market value below its liabilities. Reliance on reasonable financial statements is allowed, which is where a CPA’s read matters: a tax-basis balance sheet may carry a workover rig at zero, which is not fair market value.

Liability sits in § 53-19-27. Members or managers who approved the distribution owe the excess “to the limited liability company,” with contribution from members who knowingly received it. No creditor right appears. Section 53-19-13 shields members from company debts, and the duties in § 53-19-16 run to the company and its members. Neither section sets its own limitations period.

No reported New Mexico appellate decision on creditor standing under § 53-19-27 was located, nor any Tenth Circuit or District of New Mexico decision recognizing an LLC manager’s duty to creditors or deepening insolvency. And under § 53-19-58, a suit for the company needs a vote of members not adverse to it. If both members took the money, nobody is left to vote. State-law strategy belongs with New Mexico-licensed counsel.

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Why is New Mexico’s voidable transactions law the real answer to Weinstein?

It gives the creditor a claim in its own name. Under the Uniform Voidable Transactions Act (NMSA 1978, §§ 56-10-14 through 56-10-29), § 56-10-19(A) makes a transfer voidable by an existing creditor if the debtor received no reasonably equivalent value and was or became insolvent. Section 56-10-17 defines value as property or satisfaction of a debt, and a return on equity is neither. So the fight is about insolvency, and it tilts toward creditors: Section 56-10-16(B) presumes insolvency when a debtor is generally not paying its debts as they come due. Later creditors can turn to § 56-10-18, which lists a transfer “to an insider” as a sign of actual intent. Recovery under § 56-10-22(B) is the value transferred or the creditor’s claim, “whichever is less,” and § 56-10-23 allows four years from each transfer for constructive fraud. The same rules drive merchant cash advance fraudulent transfer disputes.

How does an involuntary bankruptcy put a trustee in charge of the clawback?

Under 11 U.S.C. § 303(b), three creditors with undisputed, noncontingent claims totaling $21,050 above liens can put the LLC into Chapter 7 (adjusted April 1, 2025, per the Judicial Conference’s notice). With fewer than 12 qualifying creditors, one can file alone; the count excludes insiders and any “transferee of a transfer that is voidable.” (See the firm’s post on the twelve-creditor count.) A dismissed petition can cost the filers fees under § 303(i).

The LLC’s own § 53-19-27 claim then becomes estate property under § 541(a)(1). Section 544(b) lets the trustee “step into the shoes of a creditor,” as the Supreme Court put it in United States v. Miller, 604 U.S. ___ (2025), which arose from the Tenth Circuit, and bring the UVTA claim. Section 548(a)(1)(B) adds a federal claim reaching two years back. Recovery runs against the members under § 550(a), and the trustee has two years from the order for relief to sue under § 546(a). Section 723 reaches only general partners, not LLC members.

Can a New Mexico trustee borrow the IRS’s ten-year reach-back?

Trustees sometimes argue that § 544(b) lets them borrow the IRS’s ten-year collection period under 26 U.S.C. § 6502. The bankruptcy court here said no in Wagner v. Ultima Homes, Inc. (In re Vaughan Co., Realtors), 498 B.R. 297 (Bankr. D.N.M. 2013), warning that it “would eviscerate the UFTA’s four-year look back period.”

Ebner v. Kaiser (In re Kaiser), Adv. No. 13-01243 (Bankr. N.D. Ill. Dec. 31, 2014), went the other way. No Tenth Circuit decision was located, and Miller, a sovereign immunity case, does not settle the split. In New Mexico, plan on four years under § 544(b) and two under § 548.

When does a receiver or a charging order fit better?

Under the Receivership Act, NMSA 1978, § 44-8-1 et seq., a court may appoint a receiver where receivers are customary or where just cause and irreparable harm exist, and § 44-8-7(G) lets the receiver “bring and defend actions,” including the company claim its members will never authorize. But the creditor usually funds it, and a receiver lacks a trustee’s federal avoidance powers.

A charging order under § 53-19-35 is for creditors of a member, not of the LLC. It helps only after a creditor wins a judgment against a member who owns other LLCs.

How does the clawback math work for a Farmington oilfield services LLC?

Take a two-member Farmington well service LLC that paid each member $200,000 in quarterly draws from October 2024 through September 2025, while owing $1.1 million against $850,000 of assets at fair value. It stopped paying vendors in October 2025. An equipment rental company with invoices from mid-2024 took a $310,000 judgment in May 2026. Nine other unsecured creditors bring total claims to $780,000.

A direct UVTA suit can recover up to $310,000 plus interest and costs, and the October 2024 draw must be sued on by October 2028. The creditor pays its own fees.

With under 12 creditors, the rental company can file an involuntary Chapter 7 alone in November 2026. The § 548 window reaches back only to November 2024, so the $100,000 October 2024 draw falls outside it, but § 544(b) picks it up. If the trustee recovers $400,000 and administration costs $70,000, $330,000 remains. After any priority claims under § 726(a) (assume none), unsecured creditors get about 42 cents on the dollar, roughly $131,000 on the judgment. Less than a winning direct suit, but the trustee carries the cost.

Remedy	Who has standing	Lookback window	What the creditor recovers
LLC Act, NMSA § 53-19-27	The LLC only	None stated	Nothing directly
UVTA suit, NMSA §§ 56-10-18, 56-10-19	The creditor	Four years (one for insider preference)	Lesser of transfer or claim
Involuntary Chapter 7	The trustee, 11 U.S.C. §§ 541, 544(b), 548	Two years (§ 548); four via § 544(b)	Pro rata share of net recoveries
Receivership, NMSA § 44-8-1 et seq.	Court-appointed receiver	That of the underlying claim	As the court orders
Charging order, NMSA § 53-19-35	A member’s judgment creditor	None	The member’s distributions

Frequently Asked Questions

Can I sue the owners of a New Mexico LLC personally for the company’s debt?

Not just because they own it; NMSA § 53-19-13 shields members from company debts. But members who took distributions while the company was insolvent can be sued under New Mexico’s Uniform Voidable Transactions Act, and a trustee or receiver can press the company’s own claims.

What makes a distribution to an LLC member voidable in New Mexico?

Under NMSA § 56-10-19(A), a transfer is voidable by an existing creditor if the company received no reasonably equivalent value and was or became insolvent. A distribution gives the company no value, so insolvency is usually the fight, and § 56-10-16(B) presumes insolvency when debts generally go unpaid.

How long does a creditor have to challenge a distribution under New Mexico law?

NMSA § 56-10-23 allows four years from the transfer for constructive fraud claims, and four years or, if later, one year after discovery for actual intent claims. An insider preference claim has one year. Each distribution has its own deadline.

Can a single creditor put a New Mexico LLC into involuntary bankruptcy?

Yes, if the LLC has fewer than 12 qualifying creditors and the petitioner holds at least $21,050 in noncontingent, undisputed claims (the threshold since April 1, 2025). Under 11 U.S.C. § 303(b)(2), insiders and transferees of voidable transfers are not counted. Otherwise three creditors must join.

How far back can a Chapter 7 trustee in New Mexico reach to recover member distributions?

Section 548 reaches transfers within two years before the petition. Through § 544(b), the trustee can also use New Mexico’s four-year voidable transaction period if an actual unsecured creditor could have sued. In In re Vaughan Co., Realtors (2013), the New Mexico bankruptcy court declined to stretch that to the IRS’s ten-year period.

I received distributions from an LLC that later failed. What defenses do I have?

Solvency and value come first. If the company was solvent at a fair valuation when paid, the claim may fail, and pay for work actually performed may count as value. Approving members who relied on proper financial statements also have a defense under NMSA § 53-19-27(A).

How North Star Law Firm Can Help

North Star Law Firm works both sides of this problem in the District of New Mexico. For creditors, it weighs involuntary petitions and handles the Chapter 7 case within its bankruptcy practice. It also defends members through its preference and clawback defense work and advises owners on distributions through business entity selection planning.

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 solvency numbers behind member distributions. The firm works alongside New Mexico-licensed counsel on state-law questions. Members may also want to read what happens when a trustee sells clawback claims. To discuss your situation, contact North Star Law Firm.

In March 2019 the Supreme Court decided a case about a Colorado house headed to a public trustee’s auction with no lawsuit filed. New Mexico does not foreclose most homes that way. Here the lender on an owner-occupied home loan must sue in district court, and the house goes to a special master’s sale that a judge later confirms.

Obduskey came up through the Tenth Circuit, which also hears New Mexico appeals. Its carve-out for businesses that only enforce a security interest does much less work where homes are foreclosed through the courts, and Chapter 13 can reach the case at nearly every stage.

What did the Supreme Court actually decide in Obduskey?

The Fair Debt Collection Practices Act definition of “debt collector” in 15 U.S.C. § 1692a(6) has two layers. The primary layer covers a business “the principal purpose of which is the collection of any debts,” or who regularly collects debts owed to another. A later sentence adds, for one provision only, a business whose principal purpose is “the enforcement of security interests.”

In Obduskey v. McCarthy & Holthus LLP, 586 U.S. 466 (2019), Justice Breyer’s opinion leaned on the word “also” there. Otherwise that sentence would be pointless, so a firm doing only a nonjudicial foreclosure is a debt collector solely for § 1692f(6), which bars nonjudicial dispossession in narrow cases, such as when no present right to possession exists.

Two doors stayed open. Whether lawyers who judicially enforce mortgages meet the primary definition was a question “we can leave for another day,” citing the Tenth Circuit’s deficiency-judgment point. 586 U.S. at 479. Because the firm took only steps state law required, the Court also warned that “enforcing a security interest does not grant an actor blanket immunity from the Act.” Id. at 480.

Why does New Mexico’s judicial foreclosure process change the FDCPA analysis?

New Mexico’s Deed of Trust Act, NMSA 1978 §§ 48-10-1 to 48-10-21, does allow a trustee’s power of sale under § 48-10-10. Its definitions (2025 ed.) exclude farm and ranch land and severed minerals from “trust real estate,” but not houses; the residential limit is in the Home Loan Protection Act. Section 58-21A-3 defines a “home loan” as one up to the Fannie Mae conforming limit on a one-to-four family principal residence, and § 58-21A-6 requires the creditor to “use the judicial foreclosure procedures provided by law” after a notice of the right to cure allowing at least 30 days. A jumbo loan or a rental may fall outside that definition.

After judgment, § 39-5-17 bars a sale for 30 days, and § 39-5-1 requires four weeks of published notice. Once the court confirms the special master’s sale, § 39-5-18 gives the former owner nine months to redeem, which the mortgage can shorten to one month under § 39-5-19. Bernalillo County runs a court Foreclosure Settlement Program. State-law points here are descriptive only.

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When is a New Mexico foreclosure law firm an FDCPA debt collector?

Section 1692f(6) targets nonjudicial action, so in a court foreclosure the question is the primary definition. Heintz v. Jenkins, 514 U.S. 291 (1995), holds that the Act covers lawyers who regularly collect consumer debts, “even when that activity consists of litigation.” A high-volume firm seeking judgment on the note is hardly a mere lien enforcer.

No Tenth Circuit or District of New Mexico decision since 2019 was located deciding whether a New Mexico judicial foreclosure is debt collection. The clearest test is Barnes v. Routh Crabtree Olsen, P.C., 963 F.3d 993 (9th Cir. 2020): coverage “turns not on the foreclosure forum” but on whether the plaintiff seeks money beyond the sale proceeds. Oregon barred a deficiency there; a New Mexico complaint demanding a money judgment lands on the other side.

A servicer that took over before default is excluded by § 1692a(6)(F)(iii); one that arrived after default is not. Covered parties owe a § 1692g validation notice, and § 1692e bars misstating “the character, amount, or legal status of any debt,” which covers a padded reinstatement quote. Section 1692k allows actual damages, up to $1,000 more for an individual, and fees, within one year; Rotkiske v. Klemm, 589 U.S. 8 (2019), starts that year at the violation, not its discovery.

What does a New Mexico foreclosure timeline look like for an Albuquerque homeowner?

Take a Nob Hill homeowner paying $1,850 a month who missed August, September, and October 2026: $5,550 behind before late charges. 12 C.F.R. § 1024.41(f) bars the first foreclosure filing until the loan is more than 120 days delinquent, so assume a November 2 cure notice and a January 2027 complaint in Second Judicial District Court.

Served January 20, she has 30 days to answer under Rule 1-012 NMRA. With no defense, judgment might come in May, and the 30-day wait plus publication pushes the special master’s auction to about August 2027. By then she has missed 13 payments ($24,050), and fees and costs might add $5,000, for roughly $29,050 in arrears.

Filing Chapter 13 the week before the auction, she would cure about $484 a month over 60 months on top of the regular $1,850, before the trustee’s commission. Had she filed at the end of October 2026 owing about $6,000, the cure would have been near $100 a month.

How does Chapter 13 stop a New Mexico foreclosure sale and cure the arrears?

The petition triggers 11 U.S.C. § 362(a), which stays the suit, the judgment, and the lien, so the special master cannot sell. Under § 1322(b)(2), the plan cannot change the rate or principal on a claim secured only by the principal residence, but § 1322(b)(5) permits curing the default over a reasonable time while staying current. Servicer claims can be raised by claim objection.

Today, under § 109(e) as adjusted April 1, 2025, a Chapter 13 debtor must owe less than $526,700 unsecured and less than $1,580,125 secured (90 Fed. Reg. 8941). As of September 26, 2026, S. 3977, which would substitute one $2,750,000 limit, had passed the Senate, and its House companion, H.R. 7730, passed on September 17, but neither was law. Repeat filers face § 362(d)(4), under which recorded in rem relief binds later cases for two years.

When is it too late for a Chapter 13 mortgage cure in New Mexico?

Section 1322(c)(1) allows a cure “until such residence is sold at a foreclosure sale.” In re Battershell, No. 18-12261-t13 (Bankr. D.N.M. May 14, 2019), confirms the right survives a foreclosure judgment. No Tenth Circuit or District of New Mexico decision was located deciding which New Mexico moment counts as the sale.

In re Brakhahn, Adv. No. 18-1021-t (Bankr. D.N.M. Jan. 24, 2019), a lien-avoidance case, says title “passes when the special master’s sale is approved by a court,” and § 39-5-18(E) starts redemption when the confirmation order is filed. But Colon v. Option One Mortgage Corp., 319 F.3d 912 (7th Cir. 2003), ended the cure right at the auction even though Illinois also requires confirmation.

Treat the auction as the deadline. Afterward, redemption means paying the purchaser’s price plus ten percent interest in one lump.

Foreclosure stage	Who acts	FDCPA after Obduskey	Effect of bankruptcy
Cure notice and letters	Servicer	Only if servicing began after default	Arrears go into the plan
Complaint seeking a money judgment	Law firm	Open question; Heintz and Barnes favor coverage	Stays the suit
Judgment and 30-day window	Court and counsel	§ 1692e reaches misstated payoffs	Cure still available
Special master’s auction	Special master	Court officer, not a typical defendant	Stays the sale if filed first
Confirmation and redemption	Court and purchaser	Largely outside the Act	Cure likely gone; redemption remains
Deficiency collection	Lender or debt buyer	Core FDCPA ground if covered	Generally dischargeable

Frequently Asked Questions

Does the FDCPA apply to home foreclosures in New Mexico?

It can. Obduskey limits coverage for businesses doing only nonjudicial foreclosures, but New Mexico requires most owner-occupied home loans to be foreclosed in court. A law firm that regularly sues homeowners for a money judgment on the note may be a debt collector under Heintz v. Jenkins. The Tenth Circuit has not settled the point.

What is the notice of right to cure under New Mexico law?

Before foreclosing a home loan, New Mexico’s Home Loan Protection Act requires the creditor to deliver a notice describing the default and how to cure it, with a cure date at least 30 days after delivery. Whether a given notice was adequate is a question for New Mexico-licensed counsel.

How long is the redemption period after a New Mexico foreclosure sale?

Nine months by default, counted from the filing of the district court order confirming the special master’s report, though the mortgage can shorten it to one month. Redeeming means paying the purchaser the sale price plus ten percent annual interest and certain taxes, all at once.

Can Chapter 13 stop a special master’s sale in New Mexico?

Yes, if the petition is filed before the sale. The automatic stay halts the foreclosure case and enforcement of the judgment. The plan can then cure missed payments over up to 60 months while regular payments continue. Filing after the auction risks losing the cure right.

How long does a homeowner have to sue under the FDCPA?

One year from the violation. In Rotkiske v. Klemm the Supreme Court held the clock starts when the violation occurs, not when it is discovered, absent an equitable doctrine. A misleading reinstatement letter received in March 2027 generally must be challenged by March 2028.

Can Chapter 13 reduce the balance on a New Mexico home mortgage?

Usually not. Section 1322(b)(2) bars a plan from modifying a claim secured only by the debtor’s principal residence. Chapter 13 instead allows curing the arrears over a reasonable period while maintaining current payments. Rental properties can be treated differently.

How North Star Law Firm Can Help

North Star Law Firm represents New Mexico homeowners in bankruptcy, including Chapter 13 cases that stop a special master’s sale and cure mortgage arrears and Chapter 7 cases where a deficiency is the bigger problem. The firm’s bankruptcy practice also reviews servicer conduct.

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 arrearage and fee math behind a foreclosure claim. The firm works alongside New Mexico-licensed counsel on state-law questions. Business owners should also see the firm’s post on the Subchapter V home mortgage cure. To review a foreclosure complaint or sale date, contact North Star Law Firm.

The Supreme Court’s opinion in Keathley v. Buddy Ayers Construction, Inc., 608 U.S. ___, No. 25-6 (U.S. June 11, 2026), singles out the Tenth Circuit, citing a 2007 Wyoming railroad case in footnote 3, as following the same rule the Court went on to reject. For nearly two decades that rule governed federal courts in New Mexico when a plaintiff’s bankruptcy omitted the lawsuit.

On August 31, a federal judge in Oklahoma City applied the new standard and barred the debtor anyway. The repair work happens mostly in bankruptcy court.

What did the Supreme Court actually decide in Keathley?

Thomas Keathley was in a confirmed Chapter 13 plan when he collided with a Buddy Ayers Construction driver. He told his bankruptcy lawyer he planned to sue, but nobody amended his schedules until the company moved for summary judgment on judicial estoppel. The lower courts applied Fifth Circuit precedent: an omission was inadvertent only if the debtor did not know the facts behind the claim or had no motive to conceal it.

Writing for a unanimous Court, Justice Jackson held that courts “should look to the totality of the circumstances surrounding the omission.” Because nearly every debtor knows of his claim and could gain by hiding it, “A near-dispositive criterion is a poor fit.” The Court assumed, without deciding, that judicial estoppel applies in bankruptcy, and footnote 5 left open whether bad faith is required. The framework is still New Hampshire v. Maine, 532 U.S. 742, 750-51 (2001), and its three factors.

Justice Thomas, joined by Justice Gorsuch, wrote that “In a future case, this doctrine merits a closer look.” Justice Sotomayor stressed that estoppel “provides one remedy and one remedy only: dismissal of the tort claim,” which tends to hurt creditors.

Why does Keathley land hardest on Tenth Circuit judicial estoppel law?

The Tenth Circuit case the Court cited was Eastman v. Union Pacific R.R. Co., 493 F.3d 1151 (10th Cir. 2007), where a debtor took a no-asset Chapter 7 discharge during a pending injury suit. Where knowledge and motive coexist, the panel said, courts “routinely, albeit at times sub silentio, infer deliberate manipulation.” Id. at 1157. Queen v. TA Operating, LLC, 734 F.3d 1081, 1093-94 (10th Cir. 2013), applied the same inference and held the debtors bound by their bankruptcy lawyer’s acts. In Anderson v. Seven Falls Co., No. 16-1377 (10th Cir. June 12, 2017) (unpublished), the panel refused to adopt the Ninth Circuit’s subjective-intent approach from Ah Quin, a decision the Supreme Court has now cited with approval.

The Eastman inference survives as evidence but dies as a shortcut. A federal court must now also weigh who prepared the schedules and how quickly the debtor fixed them.

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What did Gaines v. Halliburton hold about the debtor and the trustee?

In Gaines v. Halliburton Energy Services, Inc., No. CIV-25-661-R (W.D. Okla. Aug. 31, 2026), the court applied Keathley using the Eleventh Circuit’s factor list from Slater. She had bankruptcy counsel. She answered “No” on Schedule A/B, question 33, whose examples include accidents, while listing a garnishment case elsewhere. She sought to reopen only after defense counsel found the bankruptcy, and filed nothing in four months. Following Queen, the court found Oklahoma’s $50,000 injury exemption appeared to leave at least $25,000 exposed.

Filed before the petition, the claim was estate property, making the trustee the proper plaintiff under Fed. R. Civ. P. 17(a)(3). Finding no inconsistent conduct by the trustee, the court estopped only the plaintiff and held off entering judgment for sixty days, to about October 30, 2026, so the trustee could join. The plaintiff was told to send the trustee the order.

How does a New Mexico debtor reopen a closed Chapter 7 case to fix an omitted claim?

Under 11 U.S.C. § 541(a)(1), a claim existing on the petition date belongs to the estate, lawsuit filed or not. Closing abandons only scheduled property under § 554(c); § 554(d) keeps the rest in the estate.

The fix is a motion in the District of New Mexico bankruptcy court under § 350(b) and Fed. R. Bankr. P. 5010, which permits reopening “to administer assets.” A trustee is appointed only if the court finds one needed. Amended Schedules A/B and C follow under Rule 1009(a), restarting the 30-day objection window of Rule 4003(b).

The trustee may prosecute or settle the claim, sell it under § 363(b), or abandon it under § 554(a). In Eastman, the trustee paid creditors and abandoned the claim back to the debtor, who was then estopped. 493 F.3d at 1155 n.3. In Anderson, a claim pleaded above $5 million was capped at $45,662.04, roughly what creditors and fees required. And in Baker v. Bank of New York Mellon (In re Baker), Adv. No. 11-1131 (Bankr. D.N.M. Oct. 2013), Judge Thuma refused to let the Chapter 7 trustee substitute in mid-trial after the debtors had eight years and four bankruptcy lawyers to fix the omission.

Can a New Mexico debtor still exempt part of a personal injury recovery?

Filers may choose the federal list in § 522(d), whose capped bodily injury exemption excludes pain and suffering, or New Mexico’s list. NMSA 1978, § 42-10-1, rewritten in 2023, has no line for tort claims. Candidates are the $15,000 allowance for “any personal property, tangible or intangible” in Subsection (A)(14) and, for a debtor who owns no home, another $15,000 under § 42-10-10. These are enacted figures; § 42-10-14 adjusts them every two years from July 1, 2025.

On a $120,000 claim, even $30,000 leaves a gap, and under Queen that gap is the unfair advantage. Law v. Siegel, 571 U.S. 415 (2014), bars denying exemptions on grounds outside the Code but recognizes that state law may deny a state exemption for misconduct. Whether New Mexico law does, and how these allowances stack, are questions for New Mexico-licensed counsel.

How would a Las Cruces crash case play out under Eastman versus Keathley?

Picture a Las Cruces nurse rear-ended on Lohman Avenue in 2024 by an out-of-state company’s van. She sues in state district court in Doña Ana County, and the company removes on diversity. In January 2026 she files Chapter 7 in Albuquerque and checks “No” on question 33. After a no-distribution report, the discharge enters in May and the case closes. In August, defense counsel finds it on PACER and moves for summary judgment.

Under Eastman, that motion was close to automatic. Under Keathley, a prompt reopening and proof that she told her bankruptcy lawyer about the crash would separate her from the Gaines plaintiff. Had the case stayed in state court, estoppel would be a New Mexico law question; no reported New Mexico appellate decision applying it to a bankruptcy omission was located on review.

A false oath made “knowingly and fraudulently” bars discharge under § 727(a)(4)(A), and § 727(d)(1) permits revoking a discharge obtained through fraud the requesting party learned of only afterward, if sought within one year under § 727(e)(1). Injury lawyers should ask at intake, and again before mediation, whether the client has filed or is considering bankruptcy.

Factor	Eastman and Queen (before June 2026)	Keathley totality test	What a D.N.M. debtor should do
Knowledge	Nearly ended the inquiry	One fact among many	List every accident at question 33, suit or not
Motive	Inferred from seeking a discharge	Hypothetical motive alone is not intent	Record what counsel was told
Inadvertence	Client bound by lawyer’s acts	Sophistication and 341 testimony weighed	Answer 341 questions broadly
Creditor interests	Defendant’s windfall tolerated	Concurrence stresses harm to creditors	Reopen so creditors get the value
Trustee role	Not estopped; recovery capped at debts and fees	Not addressed directly	Cooperate with the trustee
Correction	Reopening after exposure too late	Timing of correction is relevant	Reopen and amend within days, not months

Frequently Asked Questions

What is judicial estoppel when a debtor omits a claim?

Judicial estoppel is an equitable doctrine that keeps a party from winning on one position in court and then taking the opposite one elsewhere. A debtor who swears no claims exist and later sues on an unlisted claim can be barred, though the Supreme Court has only assumed it applies in bankruptcy.

Did Keathley v. Buddy Ayers change the law in New Mexico?

For federal cases, yes. The Supreme Court rejected the rule that an omission is inadvertent only if the debtor lacked knowledge of the claim or had no motive to hide it, citing the Tenth Circuit’s Eastman decision as applying it. New Mexico federal courts must now weigh all the circumstances.

Who owns a personal injury claim left off Chapter 7 schedules?

The bankruptcy estate owns it. A claim existing at filing is estate property under 11 U.S.C. § 541(a)(1), and closing abandons only scheduled property. Unlisted claims stay in the estate under § 554(d), so the trustee, not the debtor, controls them.

How do I reopen my New Mexico bankruptcy case to disclose a lawsuit?

The debtor moves to reopen in the Bankruptcy Court for the District of New Mexico under 11 U.S.C. § 350(b) and Bankruptcy Rule 5010, then amends the schedules under Rule 1009(a). A trustee usually handles the claim. Speed matters, because timing now bears on inadvertence.

Can I lose my discharge for failing to list a lawsuit?

It is possible. Section 727(a)(4)(A) denies a discharge for a false oath made knowingly and fraudulently, and § 727(d)(1) allows revoking a discharge obtained through fraud the requesting party learned of only afterward. Under § 727(e)(1), that request must come within one year of the discharge.

Does New Mexico have a personal injury exemption in bankruptcy?

New Mexico’s exemption statute, NMSA 1978, § 42-10-1, has no line item for tort claims. A debtor may use the $15,000 personal property wildcard and, without a home, the $15,000 exemption in lieu of homestead. How they apply to a claim is a New Mexico law question.

How North Star Law Firm Can Help

North Star Law Firm’s bankruptcy practice represents New Mexico debtors in Chapter 7 and Chapter 13 cases in the District of New Mexico, including motions to reopen and amended schedules when an injury claim surfaces after discharge.

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 reopened estate. The firm works alongside New Mexico-licensed counsel on state-law questions, such as how the New Mexico exemption overhaul reaches an injury recovery. To discuss a specific situation, contact North Star Law Firm.

1300 Desert Willow Road is a light industrial building in the Los Morros Business Park in Los Lunas. It was the only asset of 1300 Desert Willow Road, LLC, which borrowed $20 million from Romspen Investment LP in April 2022 and, after two years of forbearance, filed Chapter 11 in June 2025, in Manhattan. On July 21, 2026, Judge Philip Bentley issued a bench decision in In re 1300 Desert Willow Road, LLC, No. 25-11375 (PB) (Bankr. S.D.N.Y.), holding that the “reasonable” limit in 11 U.S.C. § 506(b) applies only to charges that accrue after the petition.

For New Mexico owners, venue is one twist. The other is that the Bankruptcy Court for the District of New Mexico drew nearly the same line in 2010.

Why did a Los Lunas building end up in a New York bankruptcy court?

Venue comes from 28 U.S.C. § 1408, which permits filing where the debtor’s “domicile, residence, principal place of business in the United States, or principal assets in the United States” sat for most of the prior 180 days. The building was in Valencia County, but the court’s earlier published ruling, In re 1300 Desert Willow Rd., LLC, 677 B.R. 176 (Bankr. S.D.N.Y. 2026), identifies the debtor as a New York LLC, and an entity’s domicile is generally treated as its state of organization.

Transfer remains possible under 28 U.S.C. § 1412 “in the interest of justice or for the convenience of the parties,” after notice and a hearing under Fed. R. Bankr. P. 1014(a)(1). So a New Mexico owner whose property company is organized elsewhere may litigate its lender’s claim half a continent from the building, even though here a New Mexico state court had appointed a receiver in early 2023.

What did Judge Bentley decide about prepetition fees and default interest?

Section 502(b) measures a claim on the filing date and allows it unless “unenforceable against the debtor and property of the debtor, under any agreement or applicable law.” The exception, § 506(b), serves a lender whose collateral exceeds its claim. In United States v. Ron Pair Enterprises, Inc., 489 U.S. 235, 241 (1989), the Supreme Court held that “[r]ecovery of postpetition interest is unqualified,” while fees, costs, and charges must be reasonable.

Reading the sections together, Judge Bentley found § 506(b) ambiguous and chose the narrower reading, leaving earlier charges to the law the note selected, New York’s. He disallowed prepetition late charges as a penalty duplicating default interest. Forbearance fees were allowed. Postpetition default interest was allowed only if the pending sale proves Romspen oversecured; postpetition late charges were disallowed.

A July 21, 2023 forbearance agreement scheduled the amounts then owed, and because the debtor never challenged it, the court treated those figures as fixed. A payoff recital deserves the scrutiny given a stipulated judgment.

Which courts apply § 506(b) reasonableness to prepetition lender fees?

The en banc Eleventh Circuit in In re Welzel, 275 F.3d 1308 (11th Cir. 2001), applied § 506(b) “across-the-board to all contractually set attorney’s fees,” including fees vested before filing. The Fifth Circuit agreed in In re 804 Congress, L.L.C., 756 F.3d 368 (5th Cir. 2014), that the statute “does not draw a distinction between fees vested pre- or post-petition.”

Both cases involved attorney’s fees. And Welzel did not erase the excess; it held the unreasonable portion is “treated as an unsecured claim.” In a solvent case that slice still gets paid ahead of the owner.

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Has the Tenth Circuit or the New Mexico bankruptcy court taken a side?

No published Tenth Circuit decision resolving the question was located, but the signals lean toward Judge Bentley. In In re Gledhill, 164 F.3d 1338, 1340 (10th Cir. 1999), the court said oversecured creditors “are entitled to interest, penalties, attorney fees, and costs that accrue before” the petition. That was dicta. The Bankruptcy Appellate Panel, in In re Sun ‘N Fun Waterpark, LLC, 408 B.R. 361 (10th Cir. BAP 2009), deferred to a state-court fee judgment and repeated its earlier view that § 506(b) has “no relevance to the allowance of prepetition fees.”

Closest to home is In re Market Center East Retail Property, Inc., 433 B.R. 335 (Bankr. D.N.M. 2010), involving an Albuquerque shopping center. Judge James S. Starzynski allowed prepetition default interest and late charges under § 502(b)(1) and New Mexico law, then tested postpetition charges under § 506(b). He allowed the 12.74 percent default rate but struck a $377,438.82 late fee on the matured balloon as a penalty.

How does New Mexico law treat default interest and late charges?

Under Judge Bentley’s approach, prepetition charges on a New Mexico note rise or fall on New Mexico contract law. This is description only; state-law questions belong with New Mexico-licensed counsel. First National Bank in Albuquerque v. Energy Equities, Inc., 91 N.M. 11, 569 P.2d 421 (Ct. App. 1977), treats a higher post-default rate as “merely contractual.” Usury rarely helps an entity borrower, as NMSA 1978, § 56-8-9(B) exempts business-entity debtors from maximum-rate laws. The 15 percent rate in § 56-8-3 applies only absent a written rate.

Flat charges draw closer review. Gruschus v. C.R. Davis Contracting Co., 75 N.M. 649, 409 P.2d 500 (1965), refuses enforcement where the amount is “so extravagant or disproportionate as to show fraud, mistake or oppression,” and Nearburg v. Yates Petroleum Corp., 1997-NMCA-069, 123 N.M. 526, describes a penalty as one that “goes beyond compensation into punishment.” Applying both, In re WM Distribution, Inc., 591 B.R. 52 (Bankr. D.N.M. 2018), refused a $600,000 default add-on to a $1.3 million note. No New Mexico appellate ruling on forbearance fees was found.

What changes when the debtor is single asset real estate?

Under § 101(51B), a leased Los Lunas warehouse producing substantially all of its owner’s income is classic single asset real estate. Section 362(d)(3) gives that debtor 90 days after the order for relief (or 30 days after a SARE determination, if later) to file a plan with “a reasonable possibility of being confirmed within a reasonable time” or start monthly payments to the lender.

Those payments run at “the then applicable nondefault contract rate of interest” on the value of the lender’s interest. Meanwhile an oversecured claim can keep accruing at the default rate, eating the cushion.

How much turns on the prepetition question for a $6 million Los Lunas loan?

Suppose a $6,000,000 interest-only loan at 8 percent, with a 13 percent default rate, 5 percent late charges and a 5 percent acceleration charge. After twelve missed payments and two $90,000 forbearance fees, the petition-date claim is principal plus $480,000 of contract interest, $300,000 of default increment, $24,000 of late charges, a $300,000 acceleration charge, $180,000 of forbearance fees and $60,000 of legal fees: $7,344,000.

With an $8,000,000 appraisal, the cushion is $656,000. Ten months in Chapter 11 at 13 percent adds $650,000, plus $150,000 of lender legal fees. That $800,000 overruns the cushion and wipes out the owner’s equity. If the acceleration charge and monthly late charges fall as penalties under New Mexico law, the claim drops to $7,020,000, the cushion grows to $980,000, and roughly $180,000 stays with the owner. Proof matters. The Desert Willow debtor lost its forbearance fee challenge largely by offering no evidence the fees were above market.

Charge	Bentley (S.D.N.Y. 2026)	Fifth and Eleventh Circuits	Tenth Circuit and D.N.M.
Prepetition late fees	State law; disallowed as penalty	§ 506(b) reasonableness; excess unsecured	Allowed under § 502(b)(1) (Market Center East)
Prepetition forbearance fees	State law; allowed	§ 506(b) reasonableness	No decision located
Prepetition attorney’s fees	State law	§ 506(b) reasonableness	State-court judgment binding (Sun ‘N Fun)
Postpetition default interest	Allowed if oversecured	Unqualified (Ron Pair)	12.74 percent allowed (Market Center East)
Postpetition late fees	Disallowed as duplicative	§ 506(b) reasonableness	Balloon late fee struck

Frequently Asked Questions

Can a lender collect default interest after a bankruptcy filing?

Only if the lender is oversecured, meaning its collateral is worth more than its claim. Section 506(b) then allows interest with no reasonableness limit, and courts generally presume the contract default rate applies unless equities weigh against it.

Can a New Mexico business file bankruptcy in another state?

Under 28 U.S.C. § 1408, venue lies where the debtor’s domicile, residence, principal place of business, or principal assets sat for most of the prior 180 days. An LLC organized in New York may file there even if its only property is in New Mexico.

Are late fees on a commercial loan enforceable in New Mexico?

Usually. New Mexico courts enforce agreed damages unless the amount is so extravagant or disproportionate that it shows fraud, mistake, or oppression. New Mexico bankruptcy judges have still struck a balloon late fee and a $600,000 default add-on as penalties.

What is the 90-day deadline in single asset real estate bankruptcy cases?

Section 362(d)(3) gives a SARE debtor 90 days after the order for relief, or 30 days after the court finds SARE status if later, to file a plausibly confirmable plan or start monthly interest payments to its mortgage lender at the nondefault contract rate.

Does signing a forbearance agreement affect a later objection to lender fees?

It can. In the Desert Willow case, a 2023 forbearance agreement listed the amounts then owed, fees included. Because the borrower never challenged that agreement, the bankruptcy court treated those amounts as fixed and reviewed only later charges.

Has the Tenth Circuit decided whether prepetition lender fees must be reasonable under § 506(b)?

No published Tenth Circuit decision squarely resolving it was located. The Tenth Circuit has described prepetition fees as part of the claim measured at filing, and the New Mexico bankruptcy court applied state law to prepetition charges in 2010.

How North Star Law Firm Can Help

North Star Law Firm represents New Mexico business owners and guarantors in secured claim objections and the valuation fights that decide whether a lender is oversecured. That work runs through Chapter 11 and Subchapter V cases within the firm’s bankruptcy practice.

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 arithmetic behind a secured lender’s claim. The firm works alongside New Mexico-licensed counsel on state-law questions. Owners weighing options can start with the firm’s guide to choosing a bankruptcy chapter as a New Mexico business owner. To discuss a lender’s claim, contact North Star Law Firm.

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.

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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.

Around 100 cars changed hands, the two men behind it grossed past a million dollars, and on July 1, 2025 the Seventh Circuit affirmed prison terms of 70 and 60 months. The pitch sounded like a favor: a towing company would cover a debtor’s filing fee and attorney fee, and the debtor would let it tow the car away. New Mexico debtors hear the same offer. United States v. Fenner, Nos. 23-2177 & 24-1089 (7th Cir. July 1, 2025), matters in Albuquerque and Farmington because the debtors were not the defendants. They were the bait.

Federal law assumes someone other than the debtor may pay the lawyer, and responds by requiring the arrangement be filed where a judge can unwind it, the work of 11 U.S.C. § 329 and Rule 2016(b). The premise is wrong here too: the vehicle figure in NMSA 1978 § 42-10-1 is twice the federal number.

What did the Seventh Circuit actually decide in United States v. Fenner?

What the defendants were convicted of is the detail most commentary omits. Not bankruptcy fraud. The opinion describes seventeen counts: conspiracy to commit mail and wire fraud, seven wire fraud, six mail fraud, and three money laundering counts. No count under 18 U.S.C. § 152 or § 157 appears, because the lies went to lienholders, auction attendees, and the Indiana Bureau of Motor Vehicles.

The opinion opens plainly: “Fenner ran a towing company.” Birkley financed it under what Fenner called a “floor plan” arrangement and paid the debtors’ attorneys with checks on Fenner’s account. A Ford subsidiary sued, an Indiana court enjoined the scheme for violating the lien statute’s notice and timing rules, and the Seventh Circuit affirmed.

Who can legally pay a New Mexico debtor’s bankruptcy attorney fees?

Someone else can pay. Section 329(a) requires the debtor’s attorney to file a statement of “the compensation paid or agreed to be paid” and “the source of such compensation,” and Rule 2016(b), restyled effective December 1, 2024, gives 14 days after the order for relief to file it and serve the United States trustee. Official Form 2030 reduces that to a checkbox, “Debtor” or “Other,” which is where a Fenner arrangement dies. Section 329(b) then lets a court order the payment returned. In re Stewart, No. 15-12215-JDL (Bankr. W.D. Okla. May 27, 2025), from New Mexico’s own U.S. Trustee region, held a fee arrangement structured to get counsel paid “thus subject to Rule 2016 disclosure.”

Those making the offer are regulated too. Section 526(a)(4) bars a debt relief agency from advising anyone to incur more debt in contemplation of filing “or to pay an attorney or bankruptcy petition preparer a fee.” A preparer under 11 U.S.C. § 110 may give no legal advice and may not collect the filing fee, though it sets no maximum fee. New Mexico sits in U.S. Trustee Region 20, with an Albuquerque office.

How much of a New Mexico vehicle can a Chapter 7 debtor keep?

Laws 2023, ch. 104, § 4 rewrote § 42-10-1 effective July 1, 2023, exempting “a person’s aggregate interest in motor vehicles, not exceeding ten thousand dollars ($10,000) in value.” Former § 42-10-2 was repealed, so older citations mislead; § 42-10-14 directs a biennial adjustment from July 1, 2025, published by the Administrative Office of the Courts, so the operative figure may exceed it.

Under 11 U.S.C. § 522(b) a debtor may claim the federal list unless state law “specifically does not so authorize.” New Mexico’s article has no such bar, and the federal figure is $5,025 as adjusted April 1, 2025, so vehicle equity fares better under the state set (see the 2023 exemption overhaul). Three tools protect the car: § 362(a) stays “any act to obtain possession of property of the estate,” § 722 allows redemption, and § 524(c) reaffirmation.

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How does New Mexico’s towing lien statute compare with the Indiana facts?

New Mexico’s version of the statute the Fenner defendants abused is narrow. NMSA 1978 § 48-3-19 gives those who tow, store, or furnish wrecker service a lien for the “reasonable value of such services,” perfected through § 48-3-13, requiring itemized notice and ten days to pay, and § 48-3-14, requiring twenty days’ notice and a public auction. The inflated lien and the 1:30 in the morning Christmas Eve auctions would break both.

What criminal and discharge risk does the debtor take on?

The debtors in Fenner were victims. A New Mexico debtor who signs schedules hiding the arrangement is not. Section 152 reaches anyone who knowingly and fraudulently conceals estate property, makes a false oath in a title 11 case, or transfers property in contemplation of one, and § 157 reaches a fraudulent scheme carried out by filing. Each carries up to five years. Section 727(a)(4)(A) works faster, denying discharge for a false oath, which the Tenth Circuit read in Job v. Calder (In re Calder), 907 F.2d 953, 955 (10th Cir. 1990), to require a “material matter” and “intent to defraud.” Section 548 gives the trustee two years to avoid a transfer for less than reasonably equivalent value.

What does the math look like for a Farmington pickup owner?

Consider a hypothetical. A Farmington resident owns a 2019 pickup worth $14,000 securing a $9,000 loan and is offered a “free” Chapter 7 filing in exchange for the truck. The equity is $5,000, the $10,000 exemption covers it, and reaffirmation under § 524(c) keeps the truck. The honest alternative is an $1,800 attorney fee plus a $338 filing fee, or $2,138. The “free” deal trades $5,000 of exempt equity and the truck for that $2,138, a net loss near $2,900 before the cost of reaching work in San Juan County.

The attorney-CPA point is that the numbers expose the arrangement, not the story. Vehicles go on Schedules A/B, the exemption on Schedule C, the lender on Schedule D, and a truck at $14,000 against a $9,000 lien and a $10,000 exemption reconciles to zero nonexempt equity. Delete the truck and the lender secures nothing, while line 18 of Official Form 107 asks about two-year transfers under a perjury warning.

How can a New Mexico debtor pay for a bankruptcy the lawful way?

The statutory fees in 28 U.S.C. § 1930(a)(1) are $245 for chapter 7 and $235 for chapter 13, and the current fee schedule adds $78 plus a $15 trustee fee, totaling $338 and $313. Section 1930(f)(1) allows a waiver below 150 percent of the poverty line, and Rule 1006(b) lets the clerk accept a petition with nothing paid on a signed installment application, four installments within 120 days.

Chapter 13 pays counsel through the plan, and bifurcated agreements get disclosed too. New Mexico Legal Aid runs statewide intake and a consumer law program, and the bankruptcy court keeps resources for filers without counsel. None costs a vehicle.

Way to fund the filing	What the debtor gives up	Authority	Disclosure
Relative pays counsel directly	Nothing	11 U.S.C. § 329(a); Rule 2016(b)	Form 2030, naming the payer
Towing company pays the fees	The vehicle and its exempt equity	11 U.S.C. § 548; § 727(a)(2)	Yes, and it invites avoidance
Filing fee in installments	Nothing	Fed. R. Bankr. P. 1006(b)	Installment application
Filing fee waived	Nothing	28 U.S.C. § 1930(f)(1)	Income under 150 percent
Fees through a chapter 13 plan	Plan payments over three to five years	11 U.S.C. § 329; § 330	Disclosure and the plan

Frequently Asked Questions

Is it legal for someone else to pay my bankruptcy attorney fees in New Mexico?

Yes, but it must be disclosed. 11 U.S.C. § 329(a) requires the debtor’s attorney to file a statement of the compensation paid or promised and its source, and Fed. R. Bankr. P. 2016(b) sets a 14-day deadline after the order for relief. Section 329(b) allows excessive fees to be returned.

What is the motor vehicle exemption in a New Mexico bankruptcy?

NMSA 1978 § 42-10-1, rewritten by Laws 2023, ch. 104, § 4 effective July 1, 2023, exempts a person’s aggregate interest in motor vehicles up to $10,000. Section 42-10-14 requires a cost-of-living adjustment from July 1, 2025, published by the Administrative Office of the Courts, so the figure may be higher.

What federal statutes did the Fenner defendants violate?

The Seventh Circuit’s July 1, 2025 opinion in United States v. Fenner, Nos. 23-2177 and 24-1089, describes seventeen counts: conspiracy to commit mail and wire fraud, seven wire fraud, six mail fraud, and three money laundering counts. No count under 18 U.S.C. § 152 or § 157 appears.

Can a bankruptcy petition preparer in New Mexico advise me about my car?

No. 11 U.S.C. § 110(e)(2) bars a bankruptcy petition preparer from offering any legal advice, and the statute lists advice about which chapter to file, whether a debt will be discharged, and property the debtor may keep. A preparer may not collect the filing fee either.

Could handing my car to a third party cost me my Chapter 7 discharge?

It can, if the schedules hide it. 11 U.S.C. § 727(a)(4)(A) denies discharge for a knowing and fraudulent false oath, and the Tenth Circuit held in Job v. Calder (In re Calder), 907 F.2d 953 (10th Cir. 1990), that the oath must relate to a material matter and be made with fraudulent intent.

How can I pay the Chapter 7 filing fee if I cannot afford it?

Two routes exist. Fed. R. Bankr. P. 1006(b) requires the clerk to accept an individual’s petition with a signed installment application even if nothing is paid, allowing four installments within 120 days. Alternatively, 28 U.S.C. § 1930(f)(1) permits a waiver under 150 percent of the poverty line.

How North Star Law Firm Can Help

North Star Law Firm handles consumer and business bankruptcy in the District of New Mexico, including fee-source disclosure, vehicle exemptions, and prepetition transfers that should be unwound before filing. Phillip Zagotti, JD/CPA, is admitted before the U.S. District Court and the U.S. Bankruptcy Court for the District of New Mexico, and the firm works with New Mexico-licensed counsel on state-law lien and title questions. The Chapter 7 and Chapter 13 pages cover secured vehicles, the bankruptcy hub the rest.

A schedule set that reconciles, with a vehicle value, a lien balance, and an exemption claim matching the loan statements and the title record, keeps a case ordinary. One that does not draws the trustee to the transaction the debtor least wants examined. For the exemption figures see New Mexico’s exemption overhaul, and to discuss a vehicle or fee arrangement, contact North Star Law Firm.

Three oilfield vendors outside Hobbs are owed about $68,700 by a pressure-control service company that has not answered an invoice since June. Can they force it into bankruptcy and let a trustee claw back what it paid other vendors last month? Under 11 U.S.C. § 303 they can try, but success at the first hearing in Albuquerque turns on arithmetic unrelated to the debt itself.

The First Circuit took up part of that arithmetic on July 24, 2025 in PCC Rokita, S.A. v. HH Technology Corp. (In re HH Technology Corp.), No. 24-9002. New Mexico sits in the Tenth Circuit, so the decision does not bind the court here, but it settles a recurring question in contested involuntary petitions.

What does § 303 require before creditors force a New Mexico business into bankruptcy?

Eligibility comes first: § 303(a) bars an involuntary case against “a corporation that is not a moneyed, business, or commercial corporation.” When two medical suppliers petitioned against a Las Cruces hospital, the court dismissed, holding in In re Memorial Medical Center, Inc., No. 05-14043-ML (Bankr. D.N.M. Nov. 9, 2005), that the winding-up debtor “has not lost its character as an eleemosynary organization.”

Section 303(b)(1) requires three or more entities, each holding a claim neither contingent nor “the subject of a bona fide dispute as to liability or amount,” totaling at least $21,050 above any lien. Section 303(b)(2) drops that to one filer “if there are fewer than 12 such holders.” The figure rose from $18,600 on April 1, 2025, a 13.2004 percent adjustment.

The same sentence lists exclusions: § 303(b)(2) counts holders “excluding any employee or insider … and any transferee of a transfer that is voidable” under the listed avoidance sections. They shrink the denominator, not just who may sign, and 11 U.S.C. § 101(31)(B) reaches a director, officer, or person in control. Disputed claims drop out too.

What did the First Circuit hold about creditors who received avoidable transfers?

In that case a judgment creditor watched the debtor wind down through a state-law assignment for the benefit of creditors, then petitioned alone in February 2022, arguing the assignee would never recover large prepetition payments. One creditor later joined, making two petitioners. The bankruptcy court counted twelve or more qualified creditors and dismissed.

The petitioners argued that a prima facie case of avoidability under § 547(b) sufficed to exclude a payment recipient. The First Circuit disagreed: “a transfer is not avoidable under section 547 if a section 547(c) defense applies.” The exclusion takes in all of § 547, so a creditor paid in the ordinary course still counts. Nor were the defenses forfeited by omission from the answer: § 547(c) defends a transfer, not a petition.

The opinion is careful on burden. It observed that “it would seem correct that the Assignee, not the Petitioning Creditors, would have the burden,” as § 547(g) allocates it, then declined to decide: the case “does not require us to resolve … the assignment of burdens of proof.” The burden “made no difference for at least two of those creditors, enough to meet the twelve-creditor minimum.”

Served With an Involuntary Petition in New Mexico? Contact Us Now

How does the Tenth Circuit test a bona fide dispute?

New Mexico petitioners answer to Bartmann v. Maverick Tube Corp., 853 F.2d 1540 (10th Cir. 1988), which held that a bankruptcy court “must determine whether there is an objective basis for either a factual or a legal dispute as to the validity of debt.” It also required a finding that the debtor was “not paying such debtor’s debts as such debts become due.”

Bartmann predates the 2005 amendment adding “as to liability or amount” to § 303(b)(1) and § 303(h)(1) (Pub. L. No. 109-8, § 1234(a)), so the test now reaches amount. The Tenth Circuit’s Bankruptcy Appellate Panel added in Red Rock Rig 101, Ltd. v. Unibridge Systems, Inc., BAP No. WO-07-073 (10th Cir. BAP May 15, 2008), that once a petitioner makes “a prima facie case that its claim is not subject to a bona fide dispute,” the burden shifts to the debtor. Unpublished, it persuades rather than binds.

How would the count run for a Hobbs service company?

Take a hypothetical. Permian Ridge Pressure Services, in Hobbs, stops paying invoices and is served with an involuntary Chapter 7 petition on September 22, 2026, so the § 547(b)(4)(A) reach-back runs to June 24, 2026. Twenty-two parties hold claims: nineteen trade creditors, two employees owed wages, and a $150,000 shareholder loan. Excluding the employees and shareholder leaves nineteen, four paid inside the window. Two are suppliers paid at roughly 30 days for three years, so § 547(c)(2) protects them. Two were paid at 75 days after threatening to stop deliveries; two others carry backcharge disputes. Fifteen qualify.

Fifteen is twelve or more, so three petitioners are required and four more would have to drop out to reach eleven. Worse, one of the three who signed is a $41,000 claimant facing a $26,000 rework dispute. The other two hold $18,500 and $9,200, clearing the $21,050 floor and still failing: one petitioner short.

Section 303(i) then lets the court, on a dismissal not by consent, award “costs” or “a reasonable attorney’s fee,” plus damages proximately caused by the filing and punitive damages against a bad-faith petitioner. Weigh $95,000 in defense fees and a cancelled $310,000 contract against a $68,700 debt.

What happens in the gap period, and how do New Mexico’s alternatives compare?

A petition does not immediately take the business. Section 303(f) lets the debtor use and dispose of property until an order for relief “as if an involuntary case … had not been commenced.” Federal Rule of Bankruptcy Procedure 1011(b) requires a defense “filed and served within 21 days after the summons is served.” Section 549(b) shields a gap transfer to the extent new value is given, but not one paying a prepetition debt, and gap credit takes third priority under § 507(a)(3).

The HH Technology debtor was already in a state assignment whose assignee would not chase the payments. New Mexico’s analogue is Chapter 56, Article 9 of NMSA 1978. Section 56-9-1 treats an act done “in contemplation of insolvency and with the design to prefer one or more creditors” as an assignment of “all the property and effects” of the debtor for all creditors. Receivership is the alternative, under NMSA 1978 §§ 44-8-1 through 44-8-10, where § 44-8-5 governs applications. Neither gives the fiduciary a trustee’s Chapter 5 avoiding powers, so a creditor chasing recent payments returns to federal court.

What should each side pull from the books first?

Section 303 litigation is a documents case, where an accounting eye earns its keep. Petitioning creditors need aged payables at the petition date, not the last closed month; a 90-day disbursement ledger from the check register and ACH log; an insider list tested against § 101(31)(B); and an honest read on whether a setoff nets their claim below the line, turning three petitioners into two. The target should pull a § 303(h)(1) “generally not paying” analysis, which compares past-due invoices to total payables rather than testing solvency. The average-days-to-pay math behind a § 547(c)(2) defense also defends a later preference suit, as the firm’s post on the ordinary-course defense under collection pressure explains.

Claim holder	Number	In the twelve?	Provision	Document
Trade creditors, undisputed	13	Yes	§ 303(b)(1)	Aged payables
Employees owed wages	2	No	§ 303(b)(2)	Payroll register
Shareholder lender	1	No	§ 101(31)(B)	Loan note
Paid in 90 days, defense holds	2	Yes	§ 547(c)(2)	Payment history
Paid in 90 days, defense fails	2	No	§ 547(b)	Check register
Claims in dispute	2	No	§ 303(b)(1)	Backcharge file

Frequently Asked Questions

How many creditors does it take to file an involuntary bankruptcy in New Mexico?

Under 11 U.S.C. § 303(b)(1), three or more entities must file when twelve or more qualifying claim holders exist, and their noncontingent, undisputed claims must total at least $21,050 above any securing lien. Section 303(b)(2) allows one filer only below twelve.

Is the involuntary petition threshold still $18,600?

No. The Judicial Conference raised the § 303(b) figure to $21,050 effective April 1, 2025, a 13.2004 percent Consumer Price Index adjustment published at 90 Fed. Reg. 8941. Adjustments run every three years, so the next is due April 1, 2028.

Which creditors are excluded from the twelve-creditor count?

Section 303(b)(2) excludes any employee or insider of the debtor and any transferee of a transfer voidable under 11 U.S.C. § 544, 545, 547, 548, 549, or 724(a). Contingent claims and claims in bona fide dispute also drop out of the count.

What did the First Circuit actually decide in HH Technology?

In PCC Rokita, S.A. v. HH Technology Corp., No. 24-9002 (1st Cir. July 24, 2025), the court held that avoidability accounts for defenses: “a transfer is not avoidable under section 547 if a section 547(c) defense applies.” So an ordinary-course payee still counts toward the twelve.

Who proves a section 547(c) defense in a contested involuntary petition?

The First Circuit said it “would seem correct” that the assignee, not the petitioning creditors, carries that burden, tracking 11 U.S.C. § 547(g), then declined to decide, since the case “does not require us to resolve … the assignment of burdens of proof.”

What can a New Mexico company recover if an involuntary petition is dismissed?

Section 303(i) permits the court, on a dismissal other than by consent of all parties, to enter judgment against the petitioners for costs or a reasonable attorney’s fee, and against a bad-faith petitioner for proximately caused damages plus punitive damages.

How North Star Law Firm Can Help

North Star Law Firm handles contested involuntary petitions in the U.S. Bankruptcy Court for the District of New Mexico from either side: attacking or building the § 303(b) creditor count, litigating bona fide disputes, and pursuing or resisting § 303(i) fees and damages on dismissal. It also handles preference and clawback defense and cases that follow an order for relief under Chapter 7 or Subchapter V, with more on the bankruptcy page.

Phillip Zagotti, JD/CPA, is an Attorney and CPA admitted to practice before the U.S. District Court and the U.S. Bankruptcy Court for the District of New Mexico. He is not licensed by the State Bar of New Mexico, and the firm works alongside New Mexico-licensed counsel on state-law matters such as assignments for the benefit of creditors and receiverships. The firm also discusses which bankruptcy chapter fits a New Mexico business. To have a petition or a 90-day payment history reviewed, contact North Star Law Firm.