The envelope reaches a Roswell office in late September: a summons and an adversary complaint from the Chapter 7 trustee of an oilfield services company that shut down last spring. The defendant is a small consulting LLC owned by the former owner’s brother-in-law (his wife’s brother), and the trustee wants $180,000 in payments undone and returned. The first question is always the same: does the trustee have a case, or just a theory?
That depends on what the complaint says. In February 2026 a New York bankruptcy court dismissed a trustee’s conclusory complaint against a produce supplier, mostly on condition, and gave the trustee 21 days to replead (Mendelsohn v. Dole Fresh Fruit Co. (In re Barnett Corp.), Adv. No. 8-24-08121-AST (Bankr. E.D.N.Y. Feb. 13, 2026)). Here is how the same fight looks in the District of New Mexico.
What happens in the first 30 days after a bankruptcy trustee lawsuit in New Mexico is served?
Under Fed. R. Bankr. P. 7012(a), the answer is due 30 days after the summons was issued, not after you received it. Rule 7004 allows service by first-class mail deposited within 7 days of issuance. A summons issued September 21 means an answer due October 21.
The alternative is a Rule 12(b)(6) motion to dismiss. Under Fed. R. Civ. P. 12(a)(4)(A), the answer then comes due 14 days after the court denies the motion, and Wagner v. Pruett (In re Vaughan Co., Realtors), Adv. No. 11-1185 J (Bankr. D.N.M. Aug. 2, 2012) held that a partial motion suspends the deadline for every count.
The complaint may change. Fed. R. Civ. P. 15(a), applied through Rule 7015, lets the trustee amend once within 21 days after your motion is served, and leave comes freely after that. In Montoya v. Akbari-Shahmirzadi, Adv. No. 13-01035-t (Bankr. D.N.M. Nov. 14, 2016), Judge Thuma kept a thin count alive but ordered a second amended complaint stating whether it rested on § 548, § 544, or both.
Why does the trustee plead New Mexico’s Uniform Voidable Transactions Act on top of the Bankruptcy Code?
Reach. 11 U.S.C. § 548(a)(1) covers transfers within 2 years before the petition. Section 544(b)(1) lets the trustee use any avoidance right a real unsecured creditor holds under “applicable law,” here the Uniform Voidable Transactions Act, NMSA 1978, §§ 56-10-14 to -29, as rewritten in 2015. Actual intent is § 56-10-18(A)(1); the constructive claims are § 56-10-18(A)(2) and § 56-10-19(A).
Under § 56-10-23, those claims reach back four years; an actual-intent claim may instead run one year after the transfer “was or could reasonably have been discovered,” if later. If the state period was still open on the petition date, Pruett says the trustee then gets the § 546(a) window, generally two years after the order for relief.
Some trustees borrow the IRS’s 10-year collection period in 26 U.S.C. § 6502 whenever the IRS holds an unsecured claim. Most courts that have ruled allow it. This district does not. In Wagner v. Ultima Homes, Inc. (In re Vaughan Co., Realtors), 498 B.R. 297 (Bankr. D.N.M. 2013), Judge Jacobvitz held that the government’s immunity from state limitation periods does not pass to a trustee, and that the discovery rule asks when a creditor could have found the transfer. I found no Tenth Circuit or BAP ruling either way.
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What must a fraudulent transfer complaint in New Mexico plead under Rule 9(b)?
Fed. R. Bankr. P. 7009 imports Fed. R. Civ. P. 9(b): fraud must be stated “with particularity,” though intent “may be alleged generally.” The Tenth Circuit wants the “time, place and contents of the false representation, the identity of the party making the false statements and the consequences thereof.” Koch v. Koch Industries, Inc., 203 F.3d 1202, 1236 (10th Cir. 2000).
I found no published Tenth Circuit or BAP decision squarely applying Rule 9(b) to a § 548(a)(1)(A) claim. The New Mexico bankruptcy court applies it anyway. Pruett used Koch for claims under § 548(a)(1) and § 56-10-18(A)(1) and, while giving an outsider trustee some slack, still required facts tying the defendant to the scheme. Standing alone, the counts were “a formulaic recitation of the statutory elements,” saved only by incorporated paragraphs naming each payment. Akbari likewise said actual fraud claims “must be plead with specificity.”
Trustees plead the debtor’s intent through badges of fraud, the eleven listed in § 56-10-18(B), and Montoya v. Ferguson (In re Motiva Performance Engineering, LLC), Adv. No. 21-1026-t (Bankr. D.N.M. Oct. 7, 2022) applied the same badges under both statutes.
How much must the trustee allege about value and insolvency?
Constructive claims need no intent, so the plausibility test of Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iqbal, 556 U.S. 662 (2009) governs, and “threadbare recitals” fail it. New Mexico’s insolvency test in § 56-10-16 is a fair-value balance sheet, with a presumption against a debtor generally not paying debts as they come due.
The trustee carries the value burden, and paying a real debt is generally value. In Montoya v. Goldstein (In re Chuza Oil Co.), Adv. No. 20-1008-t (Bankr. D.N.M. July 16, 2021), an oil company’s note payments to the owner’s mother survived trial. The family had put about $395,663 back in, and insider status plus insolvency, with “no other indicia of fraud,” proved no intent.
Which clawback defenses work for a New Mexico defendant?
Good faith for value comes first. A transferee that “takes for value and in good faith” keeps what it paid for under § 548(c), to the extent of value given; New Mexico’s counterpart is § 56-10-22(A) and (D), with the burden on the defendant. Pruett notes the Tenth Circuit judges § 548(c) good faith objectively, by what a diligent inquiry would have revealed.
Next: who actually got the money? Section 550 makes the initial transferee strictly liable but protects later transferees who took for value, in good faith, and without knowledge. The Tenth Circuit requires “dominion over the money,” so a mere conduit is not a transferee. Bailey v. Big Sky Motors, Ltd. (In re Ogden), 314 F.3d 1190 (10th Cir. 2002). In Montoya v. Goldstein (In re Chuza Oil Co.), Adv. No. 20-1007-t (Bankr. D.N.M. Feb. 12, 2021), the owner’s 17-year-old daughter, who deposited three checks into her father’s accounts, won on that defense, though the court said it “should have been front and center” in her answer.
Deadlines in § 546(a) and § 550(f) are hard limits. But if the debtor ran a Ponzi scheme, intent is presumed, as the Tenth Circuit holds under Utah’s uniform act, Klein v. Cornelius, 786 F.3d 1310, 1320 (10th Cir. 2015); Hafen v. Howell, No. 23-4116 (10th Cir. Nov. 15, 2024), and Pruett applied it under § 548 and New Mexico law. I found no New Mexico appellate ruling on it.
How would a Roswell trustee plead the brother-in-law’s consulting fees?
An illustrative case: the company, a corporation, wired the LLC $15,000 a month from March 2025 through February 2026, $180,000 in all, and filed Chapter 7 on May 4, 2026. A voluntary filing is the order for relief under § 301(b), so the § 546(a) deadline is May 4, 2028.
Every wire falls inside § 548’s two years. Expect § 548(a)(1)(A) and (B) counts, mirror counts under §§ 56-10-18 and 56-10-19(A), and a § 550 count against the LLC and the brother-in-law. For intent, Rule 9(b) asks for each wire’s date, amount, approver, invoice description, and badges. The brother-in-law is a “relative” under 11 U.S.C. § 101(45) and § 56-10-15, so he is an insider under § 101(31)(B)(vi) and § 56-10-15(H)(2)(f). Both definitions say “includes,” and the trustee will argue the LLC counts too.
The defense answers the § 56-10-18(B) checklist with documents: an engagement letter, field reports, a market rate, open entries in the books, no lawsuit pending when the wires went out, and bank records showing the LLC kept the money. I see these cases turn most often on whether the consulting left a paper trail.
| Count | Reach-back | Pleading standard | Main defenses |
|---|---|---|---|
| § 548(a)(1)(A) actual intent | 2 years | Rule 9(b), as D.N.M. applies it | Good faith for value, § 548(c) |
| § 548(a)(1)(B) constructive | 2 years | Twombly and Iqbal plausibility | Reasonably equivalent value; solvency |
| NMSA § 56-10-18(A)(1) via § 544(b) | 4 years, or 1 year after discovery | Rule 9(b) | § 56-10-22(A) good faith; limitations |
| NMSA §§ 56-10-18(A)(2), 56-10-19(A) | 4 years | Plausibility | Value; solvency under § 56-10-16 |
| § 550 recovery | § 546(a) and § 550(f) deadlines | Facts on who received the funds | Mere conduit; later-transferee good faith |
Frequently Asked Questions
How long do I have to answer a trustee’s adversary complaint in New Mexico?
Thirty days after the summons was issued, under Rule 7012(a). Check the issue date on the summons, not the postmark. A timely Rule 12(b) motion postpones the answer until 14 days after the court rules.
Can a trustee recover payments older than two years?
Yes. Through § 544(b), the trustee can use New Mexico’s four-year reach-back under § 56-10-23. The New Mexico bankruptcy court has rejected stretching that to the IRS’s 10-year collection period.
Does Rule 9(b) apply to constructive fraudulent transfer claims?
Generally not. Those claims involve no intent to deceive, so courts test them for plausibility under Twombly and Iqbal. Bare claims of no value or insolvency still fail.
I only passed the money along to someone else. Am I liable?
Possibly not. The Tenth Circuit treats a party without dominion and control over the funds as a conduit rather than an initial transferee. Raise the defense in your answer.
Is a relative automatically liable for payments from a failed family business?
No. Insider status is one badge of fraud, and the New Mexico bankruptcy court has found no actual intent where insider status and insolvency were the only badges. Value the relative gave also counts.
How North Star Law Firm Can Help
North Star Law Firm defends vendors, relatives, and former owners sued by bankruptcy trustees through its preference and clawback defense practice, and its bankruptcy practice includes Chapter 7 cases. Owners who took LLC distributions should also read how creditors claw them back.
Phillip Zagotti, JD/CPA, is admitted to the U.S. District Court and Bankruptcy Court for the District of New Mexico and represents taxpayers before the IRS and the U.S. Tax Court. The firm works alongside New Mexico-licensed counsel on state-law questions. If a trustee’s complaint has landed on your desk, contact North Star Law Firm.