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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Paul Tracy
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.