Despite earning a stable living, your debts just seems to accumulate. Paying them in full, along with your monthly dues, is impossible. Declaring bankruptcy is not the easiest decision in the world, but it may be your only option. You may think that filing for bankruptcy is the beginning of your path toward financial ruin, but it might prevent it.
Chapter 13 of the federal bankruptcy code allows wage earners to redeem themselves through a feasible repayment plan. Wage earners are not necessarily employees. The federal government modified the plan to cover most middle-income individuals. Another name for Chapter 13 bankruptcy is the wage earner’s plan.
What are the advantages of the wage earner’s plan?
The wage earner’s plan acts like a consolidation loan, combining all your debt into fixed monthly installments with more favorable terms. You make a monthly payment to a trustee assigned by the bankruptcy court. The trustee then distributes the payment to the creditors. The advantages of the wage earner’s plan are the following:
- It allows you to pay your debts in an attainable manner
- You have an opportunity to save your assets from foreclosure
- You can reschedule payments of secured debts and extend them over a longer period (up to five years)
- Monthly payments may be lower
- Creditors will communicate with the trustee instead of you
The bankruptcy court must approve your repayment plan. Upon approval, creditors must seize any collection attempts.
Understand the process before filing for bankruptcy
The wage earner’s plan allows any eligible individual to reorganize their debt. It is for individuals who have the income to repay their debts but are unable to do so because of time constraints. If you decide to file, the process involves multiple laws and exceptions. There are eligibility concerns such as credit counseling and evidence of income. Not everyone can qualify. Also, filing under this chapter may prevent you from filing for Chapter 7 bankruptcy in the future. You should understand all the details of the process and what your obligations will be before taking this huge financial step.