More often than not, when many people hear the word "bankruptcy" their immediate association is a negative one. This happens in spite of the fact that most people have little understanding of what filing for bankruptcy actually entails or what it is meant to be for the people who need it. This negative misconception and general lack of understanding about bankruptcy has had the unfortunate side effect of stigmatizing a process that can actually be a positive turning point in the lives of people who take the time to learn more about it, recognize their own need for a new financial start and have the courage to make what can be a difficult decision in order to pave the way for a better future for themselves and often their families as well.
Which bankruptcy option is right for me?
This is one of the most common questions we hear from clients who are at the beginning of this process and it's an important one. There are two basic types of bankruptcy that will apply to an individual - Chapter 7 or Chapter 13. A closer look at the differences between these two types will be beneficial to anyone who feels unsure about how bankruptcy can help them.
Chapter 7 - debt liquidation
This option is considered to be the simplest, quickest and most efficient in terms of getting your current debts discharged. Discharging a debt means that creditors or collection agencies are no longer allowed to take certain actions to collect a debt from you, including suing you for payment. To qualify for Chapter 7, your income will need to be below the median income for a household of your size within the state where you live - this is referred to as the "means test". If your income is too high to pass the means test, your bankruptcy option will be redirected to Chapter 13. In New Mexico the median income numbers as of November 1, 2017 are:
1 Member Household = $42,010
2 Member Household = $56,497
3 Member Household = $56497
4 Member Household = $60,509
Chapter 13 - debt reorganization
This option allows those who don't meet the mean test income qualifications for Chapter 7 or who choose this option because they have important assets that they want to protect, such as their home, to instead have their current debts reduced if possible, and have the remainder still owed restructured into a more achievable plan of repayment. These payment plans are usually stretched out over a three to five year period and are based on the amount of your current monthly income and expenses, as well as your disposable income.
Both of these options can be extremely helpful to anyone who finds themselves overwhelmed by debt, and can provide a clear path out of the daily stress and uncertainty of financial insecurity.