What is a Wage Earner Plan?


A wage earner plan, subsequently known as Chapter 13, is a bankruptcy protection scheme that allows income earners to satisfy outstanding debts -- in whole or in part -- within a specific time frame.


How Does a Wage Earner Plan Work?


In a Chapter 13 bankruptcy -- formerly called a wage earner plan -- a person petitions the court to reduce the total amount owed and provide a reasonable repayment schedule based on his or her income. Similar to a Chapter 7 bankruptcy, the debtor gets legal protection from lenders’ collection attempts. Moreover, a debtor is allowed to keep outstanding assets provided that he or she adheres to the repayment framework set forth by the court.


Why Does a Wage Earner Plan Matter?


When it was first devised, only individuals with a consistent paycheck could qualify for Chapter 13 bankruptcy (hence the name 'wage earner plan'). Today, small business owners and commission-based sales professionals also qualify for bankruptcy protection under Chapter 13.

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