Chapter 13 Bankruptcy Wage Earner Plan
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Chapter13 Bankruptcy is quite different from the Chapter7 Liquidation Bankruptcy. Instead of completely wiping away your debt, as compared to Chapter 7, you are required to pay portion of your debt in monthly installments. Also, another difference, obtaining a mortgage after bankrutpcy will come much easier after filing chapter 13.
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. So the main difference between the two is the amount of time given. Not everyone who files for bankruptcy is given this type of opportunity to repay a portion of their debt in installments. The person in debt might still have to prove to the courts that he is eligible to file a Chapter 13 before proceeding. While the Chapter7 bankruptcy filers aim to prove that they can’t pay any of their debts, Chapter13 bankruptcy filers aim to prove that they can pay their debts given the time.
The individual filing for Chapter 13 must prove that they have a decent amount of income, and that they aren’t too much into debt. With that being said, the amount of unsecured debt to be paid should be below $307,000, and the amount of the debtor’s creditor secured debts should not exceed $923,000.
Those that are filing for Chapter 13 would need to obtain a certificate of credit counseling completion form from the US Trustee’s Office. Other documents must be included with these forms such as federal tax returns from previous year, debtor’s property, earnings and spending for the year, and the repayment plan showing the bankrupt’s means to pay debt.
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.