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Why do they call Chapter 13 a “wage earner’s” plan?

On Behalf of | Feb 8, 2022 | Bankruptcy And Debt Relief

When you’re discussing different types of bankruptcy, people often refer to Chapter 7 bankruptcy as a liquidation plan. Conversely, they refer to Chapter 13 bankruptcy as a wage earner’s plan.

The names do tell you a lot about how these processes are going to work, but it is very important that you understand why you would benefit from one more than the other, or if you would even qualify for one over the other. So why do they call Chapter 13 a wage earner’s plan?

It creates a repayment plan

The goal of Chapter 13 bankruptcy is not to get rid of all of your assets, but to take your debt and consolidate it. That debt is put into a repayment plan. The bankruptcy trustee receives the money and distributes it as necessary. You normally have to pay off your debts for three to five years, but this type of plan makes it possible when it wouldn’t have been otherwise. 

This is called a wage earner’s plan because you have to have some level of income for it to work. The goal is simply to make it so that your debt fits with your current income. If you have no income – if you are not earning any wage – then you may not qualify for this type of plan because there is no repayment setup that would work with your budget.

No matter which type of bankruptcy you’re considering, it’s crucial that you understand exactly what steps you’ll need to take and what obligations you have when you file bankruptcy. It can help to have an experienced team on your side.