Chapter 13 Bankruptcy

Wage-Earner Plan – Chapter 13 Bankruptcy

Chapter13 Bankruptcy is quite different from the Chapter7 Liquidation Bankruptcy. Here, the indebted wage-earner the eventual accumulation of his income in order to pay some or all of his debts, instead of completely wiping out most of it.

Under the Chapter13 Bankruptcy case, the individual (debtor) files a reorganization plan of payment to be able to recompense his creditors over an agreed period of time usually lasting to a limited 3 to 5 years span depending on the extent of his debts and the amount of his income. Time is of the essence so to speak. Yet not all bankrupt debtors are given the time-opportunity to reorganize his assets to be able to pay. Under the new bankruptcy law, the individual may still have to prove that he can afford to meet all of the payment obligations as arranged. While the Chapter7 bankruptcy filers aim to prove that they anymore can't pay any of their debts, Chapter13 bankruptcy filers aim to prove that they can pay their debts given the time. In order to qualify, the indebted must not have an irregular income or a significantly low one, or that his debt must not be way too excessive to be worked out. Accordingly, the amount of the debtor's creditor-secured debts (property ‘exchangeable' debts) should not exceed $923, 000, and the amount of the unsecured debts to be paid should be below $307,700. Prospective Reorganization filers would also need to present a certificate of a credit counseling course completion form a US Trustee's Office-approved agency. Other documents to be submitted in filing for a Chapter13 bankruptcy are federal tax return for the previous year, proof that of filing federal and state tax returns for the previous four years, as well as other forms describing the debtor's property, earnings and spendings, and the debts, and of course, the repayment plan showing the bankrupt's means to pay the debt along with the $274 filing-fee.

Upon filing, when the bankruptcy court verifies that the debtor has a regular job with regular income, it may order that some monthly payments be automatically deducted from the wages and then sent directly to the bankruptcy court which the appointed case trustee instantly distributes to the creditors. The approval of the debtor's reorganization plan also prompts the debtor to immediately start making payments within 30-days of filing (again via trustee). In the Chapter13 Bankruptcy, the payments to be included in the plan consist of the ‘priority debts' to be paid in full - child support and alimony, owed employees wages, and certain government tax-obligations, the secured debts (car loan or mortgages), the unsecured debts (only some or not at all) – credit card or medical bills, and of course the re-arranged debts payment.

The advantage is that no matter how much you earn, your plan will end if you repay all of your debts in full, even if you have not yet reached the three-or-five-year mark. Now, plan and time is of the essence.