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Understanding Chapter 13 Wage Earner Plan and Chapter 13 Bankruptcy

The Chapter 13 Wage Earner Plan is one of the many bankruptcy options available for people who are seriously weighed down by debts. It differs from Chapter 13 Bankruptcy, another type of pre-bankruptcy option. Chapter 13 Wage Earner Plan does not offer quick and total relief of debts; it requires reorganization of a filer’s finances so as to enable payment of debts within three to five years. In many cases, it spares the filer’s valuable assets, while other bankruptcy petitions, for example Chapter 7, will automatically auction big ticket items, such as jewelry, to pay off creditors. See here for personal bankruptcy.

Chapter 13 Wage Earner Plan is available for those classified as earning a certain amount of income that is, having some disposable cash every month, but still being unable to meet all of their financial obligations. In such cases, the disposable income is used to settle outstanding debts, in accordance with a payment plan that has been approved by the bankruptcy court.

What are the documents required when filing under Chapter 13 Wage Earner Plan?
 With this bankruptcy option, you need to ensure you have the following paperwork available for examination by the bankruptcy court:

•Understanding Chapter 13 Wage Earner Plan and Chapter 13 Bankruptcy A detailed list of all your debts, their respective amounts and corresponding creditors
• Records of your income deriving from business operations or employment
• Records of income originating from other sources i.e. rental payments from your properties
• Certificates detailing your most recent payments made to creditors.
• A list of any properties and/or businesses that you own
• A schedule detailing a proposed payment plan to settle your debts

Bear in mind that failure to contribute any or all of the above information may entail negative consequences. Declaration of all your debts and assets is crucial. You will not be provided with sufficient protection under this bankruptcy code if you do not include all your creditors. Furthermore, omitting to list any of your properties, businesses, and/or income may be deemed as willful non-disclosure of assets and can result in penalties consisting of heavy fines, or worse, court denial of debt relief.

What you should know about proposed payment plans
Under Chapter 13 Wage Earner Plan, the filer is given the upper hand in setting up his or her own payment plan, which does not need to be approved by the creditors. In fact, it is the bankruptcy court that will have the final say as to whether or not the payment plan you are presenting is indeed reasonable. If you are unable to realize the plan you set out for yourself, within a period of three to five years, due to matters beyond your control (loss of employment or illness preventing you from working while the bankruptcy case is ongoing), you will have the option to file for a hardship discharge to eradicate the debts. Alternatively, the filer can seek out additional modification of the plan in order to extend the time period of payments. Note that creditors can always file for termination of the plan, and if and when that request is granted, the demand for payments will automatically resume.

What are the advantages of filing under Chapter 13 Bankruptcy?
Although you will not qualify for immediate and complete discharge from your debts when you file for this option in the bankruptcy court, you will, nevertheless, achieve the following positive gains:

• Your valuable belongings, some of which may have sentimental value, i.e. heirloom jewelry items, may be saved from being auctioned
• Foreclosure on your house or seizure of your vehicle may be halted while the debt payment plan is in effect
• You can seek modification of your debts so that excessive interest rates can be reduced
• You can gain protection from collection activities done by a co-debtor, such as an ex-spouse
• You experience a certain satisfaction in knowing that your debts will be settled, no matter how long and arduous the process.

What are the potential disadvantages of Chapter 13 Bankruptcy?
• The most notable disadvantage is that the bankruptcy record will stay on your credit record for as long as ten years, which will significantly decrease your chances of obtaining credit with reasonable interest rates in the future.
• Any substantial amount of money you acquire during the course of your bankruptcy case will have to be surrendered to a trustee appointed by the court. For example, should you receive a sizeable cash settlement as part of your inheritance, it would most likely be redirected to pay off your debts.
• Not all types of debts, including arrears on taxes, student loans, and child support or alimony payments, can obtain relief under the Chapter 13 Bankruptcy code.

Which type of bankruptcy petition is right for you? Each case is unique, and many distinctive factors must be examined prior to choosing an option. Professional consultation is advisable.

 

About the Author: Mary Talbot is the content manager for Debt Consolidation Guides. She offers debt management solutions to help you get out of debt and stay that way.