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What is a wage earner plan?

A wage earner plan is another term used to describe Chapter 13 bankruptcy. The reason Chapter 13 petitions are referred to as wage earner plans is because they are generally used to allow someone with sufficient income to make some payment toward debts to restructure debt in a way that allows for payment over three to five years.

Sometimes, individuals who originally file for Chapter 7 bankruptcy end up being transferred to a Chapter 13 filing because the court believes they have enough income to make good on a substantial part of their debt. The amount of time a person has to pay off all or part of the debt in a Chapter 13 filing depends on how the person's income relates to the median income for his or her state.

Traditionally, a Chapter 13 filing was only an option if someone could report a regular wage. Today, rules have expanded Chapter 13 availability to individuals who have income through their own business or self-employment. One reason someone might consider filing Chapter 13 bankruptcy is to keep a home from being foreclosed on.

Chapter 13 plans also help someone reorganize secured debts in a way that makes sense for current financial situations. This lets you keep certain assets and pay off creditors through negotiated plans, often reducing some of the hardships associated with rapidly building interest totals and financial fees.

Whether or not a Chapter 13 filing brings positive movement to your financial state depends on whether bankruptcy -- and Chapter 13 -- is right for you. Success also depends on proper management of your bankruptcy petition.

Source: Investopedia, "Wage Earner Plan (Chapter 13 Bankruptcy)," accessed Dec. 17, 2015

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  • NACA | National Association of Consumer Advocates
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