What Is a Wage Earner's Plan?
Let me explain what a wage earner's plan really is—it's formally called Chapter 13 bankruptcy, and it's designed for people like you who have a regular income and need to restructure your debts to pay them off over time.
In this setup, you don't aim for a full wipeout of your debts like in some other bankruptcies. Instead, you propose a repayment plan with fixed installments that basically consolidate everything into one monthly payment. You send that payment to an impartial trustee appointed by the court, and they distribute it to your creditors over a period that typically lasts three to five years.
Understanding Wage Earner's Plans
Chapter 13 bankruptcy used to be strictly for wage earners, but the rules have changed, and now it includes anyone with income, even if you're self-employed or running an unincorporated business.
You're eligible if your unsecured debts are less than $394,725 and your secured debts are under $1,184,200, plus you've gone through credit counseling from an approved agency in the last 180 days—either individually or in a group. Keep in mind, corporations or partnerships can't file for this.
Chapter 13 Bankruptcy vs. Chapter 7 Bankruptcy
If you're deep in debt, you might consider Chapter 13 or Chapter 7. Chapter 13 is about reorganizing your debts so you can keep your property, while Chapter 7 means liquidating assets to pay creditors.
One major edge Chapter 13 has is protecting your home from foreclosure—you file, stop the proceedings, and set up a plan to catch up on mortgage payments over three to five years, consolidating all debts into one payment. Chapter 7 is more common because it erases debts for a fresh start, but you often lose your home in the process.
With Chapter 13, you can also reschedule other secured debts (not your main home mortgage) and spread them out over the plan's life to lower payments. There's even a provision to shield co-signers, and since payments go through the trustee, you avoid direct creditor contact.
How to File for a Wage Earner's Plan
To get started with Chapter 13, you need to list all your creditors and how much you owe each one, along with details on any property you own. You'll also provide info on your income sources and amounts, plus a breakdown of your monthly expenses. Don't forget, you must complete credit counseling beforehand to qualify.
Example of a Wage Earner's Plan
Take Eric and Sam, a married couple who hit hard times—Eric lost his job in layoffs, and Sam got injured at work, leaving them unable to keep up with mortgage payments and owing $75,000 to the bank. The bank started foreclosure, but then Eric got a new job and Sam started a home business.
By filing for Chapter 13, they halted the foreclosure and kept their home. With their steady income now, they handle ongoing mortgage payments, and the back amounts are spread out over five years in manageable installments.
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