What Is a Wage Earner’s Plan?
A wage earner’s plan, officially referred to as Chapter 13 bankruptcy, allows people with a steady income source to reorganize their debt repayment responsibilities over time. The debtor does not aim to get broad forgiveness of their outstanding obligations under a wage earner’s plan. Instead, the debtor proposes a fixed-payment repayment plan that essentially lumps all the debt into a monthly payment. For a certain amount of time, often three to five years, the debtor pays fees to an impartial trustee who has been appointed and transmits them to the creditor.
Understanding Wage Earner’s Plans
Because Chapter 13 bankruptcy protection was restricted to those with a regular salary, it was initially known as the wage earner’s plan. Later amendments to the Act broadened its scope to include everyone, including independent contractors and those running unincorporated businesses.
Any person filing for Chapter 13 bankruptcy must have completed an individual or group credit counseling session within 180 days of filing, have unsecured debts of less than $394,725 and secured debts of less than $1,184,200, and have received credit counseling from an approved credit counseling agency. Chapter 13 bankruptcy is not an option for a business or partnership.
Bankruptcy under Chapter 13 as opposed to Chapter 7
A person deeply in debt may apply for bankruptcy under Chapter 7 or Chapter 13. Chapter 7 bankruptcy entails complete liquidation, but Chapter 13 permits debt restructuring. Debtors who file for Chapter 13 bankruptcy are allowed to retain their belongings. A debtor may be entitled to preserve a vehicle or home equity while filing for Chapter 7 bankruptcy. Still, equity shares, second residences, and vacation assets will be forfeited to satisfy creditors.
The ability to save houses from going into foreclosure is one of Chapter 13’s primary benefits for people. One way for people to stop foreclosure proceedings and submit a plan to pay off past-due mortgage payments over three to five years is to file for Chapter 13 bankruptcy. The most popular kind of bankruptcy is Chapter 7, which enables filers to start over and eliminate their current debt. But, the person filing for Chapter 7 bankruptcy often gives up their residence. Rearranging secured obligations, except a mortgage on a principal home, and extending them throughout the plan are additional options available to Chapter 13 bankruptcy filers, which may result in reduced payments. Moreover, a unique clause in a Chapter 13 bankruptcy may shield co-signers. This clause eliminates the debtor’s direct interaction with creditors by directing plan payments to an impartial trustee who has been appointed and then distributing them to creditors.
How to Register for an Employee Benefit Plan
A list of all the creditors the debtor owes money to and the total amount due must be made before filing for Chapter 13 bankruptcy. A list of all the properties they possess must also be compiled. In addition to providing specific information about their monthly spending, Chapter 13 bankruptcy filers must also provide information about their income, including how much they earn and where it comes from. To qualify, debtors must also have completed credit counseling.
A Wage-Earner’s Plan Example
Sam and Eric are a married pair. In the same year that Eric lost his job due to a wave of layoffs, Sam, his spouse, had an injury that prevented him from working. They finally owed their bank $75,000 after falling behind on their mortgage payments. Sam started a small company out of their house, and Eric got a job offer shortly after the bank started the foreclosure process. They kept their home and were able to halt the foreclosure process by filing for Chapter 13 bankruptcy.
With a reliable source of income now in place, Eric and Sam can make their monthly mortgage payments. Their mortgage has five years to pay off the arrears, and they will make modest payments during that time.
Conclusion
- A wage earner’s plan, commonly known as Chapter 13 bankruptcy, enables people to repay debts and responsibilities related to personal bankruptcy for those with a regular income source.
- Although Chapter 7 bankruptcy is the most popular kind, Chapter 13 bankruptcy has several benefits over Chapter 7 bankruptcy, chief among them being the chance it gives people to prevent the foreclosure of their homes.
- One way for people to stop foreclosure proceedings and submit a plan to pay off debts, including mortgage payments, over three to five years is to file for Chapter 13 bankruptcy. This allows them to combine all of their obligations into one monthly payment.
