Which type of bankruptcy best fits your needs?

If you have encountered financial challenges in 2020, you are definitely not alone in your struggle. Many New Mexico residents and others throughout the country are in the same boat. Global, national and personal economies are fluctuating systems. One or more of the three may become compromised at any time. In fact, it is not uncommon for an ebb and flow of financial stability to occur alongside various changes in life.

For instance, if you land the job of your dreams and things are going well, you might be able to pay all your bills and, perhaps, even set aside funds as a “nest egg” for emergencies or for pleasure. If you walk into work one day, however, and the boss tells you that your services are no longer necessary, your entire financial portfolio might take a sudden nosedive. There are several types of bankruptcy that can be valuable tools to overcome serious financial crisis.

How to know which kind you need

Bankruptcy is an issue that had a lot of negative social stigma attached to it; however, nowadays, many people understand that they can use bankruptcy to resolve unpaid debt and lay the groundwork for a stronger financial future. The following list explains the differences between Chapter 7 and Chapter 13 bankruptcies, which can help you determine which type would be best in certain circumstances:

  • The main difference between Chapter 7 and Chapter 13 is that the latter is more of a repayment program while the former typically involves complete liquidation of nonexempt assets.
  • If you have no foreseeable way to pay back debt and have no means of reliable income, you might qualify for filing under Chapter 7 bankruptcy.
  • Chapter 7 requires you to take a means test, which compares your income to the average income in your state. If you test at or below a certain level, you may not be eligible for this type of bankruptcy.
  • Another difference between these two types of bankruptcy is that Chapter 7 remains on your credit report for 10 years while Chapter 13 disappears from your report after seven years.
  • To qualify for Chapter 13, you must be able to show evidence of reliable income, and your total secured and unsecured debts must be under a certain amount for each.

You may have heard people refer to the Chapter 13 program as the “working man’s bankruptcy.” This is because the main goal of the program is to restructure your payment plans and use reliable income to pay back debt. Your lenders must agree to the alternative payment plans.

Looking ahead to the future

If you are worried about possible foreclosure on your home, it’s good to know that can activate a stay against foreclosure. It’s understandable that you want to resolve a financial crisis as swiftly as possible. It’s also important to think about the future and devise a plan to help you avoid similar financial problems down the line.

There are financial advisers and legal advocates who can explain Chapter 7 or Chapter 13 in greater detail. They can also help you determine which might be the best option in your given set of circumstances.