There is a perceived notion that filing for bankruptcy should be a “last resort” for most Americans. However, bankruptcy is an excellent tool for most hard-working citizens to repay debts and maintain assets.
But what are the limitations for bankruptcy for employees? There are specific requirements surrounding Chapter 13 bankruptcy, also known as the wage earner’s plan.
The wage earner’s plan
Chapter 13 is a specific form of bankruptcy that allows individuals with regular income to repay all or parts of their debt. Usually, the participant works with creditors to develop a payment schedule over three to five years. The best part of chapter 13 is participants may protect their homes from foreclosure proceedings.
It’s critical to know who is eligible for chapter 13 bankruptcy. Currently, any individual who receives a consistent paycheck, through an employer or self-employment, qualifies for chapter 13 bankruptcy. There isn’t a specific limitation for bankruptcy relief based on your salary or income.
However, there is a limitation in how much debt you can bring into a bankruptcy claim; you have to have less than $394,725 in unsecured debt and less than $1,184,200 in secured debt.
What does that mean for me?
Essentially, Chapter 13 offers anyone with a consistent income a chance to pay off their debt in a flexible way. You do not need to worry about a specific income level. Instead, you need to look into how much debt you have and what is the best form of bankruptcy for you.
If you decide to file for chapter 13, you need a court-appointed trustee and a repayment schedule that erases your debt. The court ultimately decides if you need a three or five-year plan, and once you finish the repayment schedule, the courts discharged your remaining debt – erasing it from your credit.
Bankruptcy is an excellent option for people who are hard workers and are ready to set aside their debt but consider meeting with a financial adviser or accountant before filing any documentation.