Wage Earner Bankruptcy

Top benefits of wage earner bankruptcy alternatives

Chapter 13 is specifically designed for employed consumers. The term wage earner bankruptcy refers to this legislative purpose. Towards this end, individuals and small businesses may file wage earner bankruptcy so long as they earn a regular income. In addition, limits are placed upon the maximum amounts of both secured and unsecured debts as a condition precedent for qualification under the terms of Chapter 13 of the Code.

Pros and Cons

One of the greatest advantages of Chapter 13 over other chapters is the option to include past due payments within the plan, which then creates the legal fiction that these payments are no longer in arrears. Mortgages, taxes and all general unsecured claims may be included in the plan. A few debts may not be included however, and generally relate to statutory limitability (i.e. past due child support payments) and other debts created without the consent of creditors.

One of the greatest disadvantages of Chapter 13 is implicitly related to the plan term. At a minimum, plans must last three years. For wage earners who receive more than the state median income, plans must last 5 years. In either case, debtors filing Chapter 13 must continue making payments for the duration of the plan, under court supervision, which includes the obligation to contribute all disposable income toward plan payments.

In practice, whether Chapter 13 makes senses, depends upon the the nature of debts owed, the willingness of each debtor to work-off debts, and strict compliance with statutory qualification requirements.