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Wage Earner Plan (Chapter 13 Bankruptcy)


The Wage Earner Plan, also known as Chapter 13 Bankruptcy, is a legal process that enables individuals with a regular income to develop a plan to repay all or part of their debts over time. Under this plan, debtors propose a repayment plan to make installments to creditors over a period of three to five years. It offers the debtor an opportunity to potentially save their property from foreclosure and readjust or reorganize their outstanding debts to manageable levels.


Weɪʤ ˈɜrnər Plæn (ˈʧæptər 13 bæŋkˈrʌptsi)

Key Takeaways

  1. Debt Reorganization: Chapter 13 Bankruptcy, also known as the Wage Earner Plan, allows individuals with a regular income to reorganize and repay their debts. This differs from Chapter 7 Bankruptcy, which focuses on discharging, or wiping out, debts without repayment. Under Chapter 13, the debtor proposes a repayment plan, which typically lasts from 3 to 5 years, to pay their debts using their future income.
  2. Protection from Creditors: Upon filing for Chapter 13 Bankruptcy, an “automatic stay” is put into place, which stops most collection actions by creditors. This can prevent harassment from creditors, stop wage garnishments, and halt foreclosure or repossession of assets, giving the debtor time to repay their debts under the protection of the bankruptcy court.
  3. Eligibility and Discharge: To qualify for Chapter 13, the individual must have a regular income and their secured and unsecured debts must not exceed certain limits. The debtor is required to complete a credit counseling course and submit documentation to the court to demonstrate their income, expenses, and proposed repayment plan. If the debtor successfully completes the repayment plan, the remaining dischargeable debts are typically eliminated, giving the individual a fresh financial start.


The Wage Earner Plan, also known as Chapter 13 Bankruptcy, is an important financial tool for individuals with a regular income who are struggling with debt. Unlike Chapter 7 bankruptcy, which involves liquidation of assets, the Wage Earner Plan allows debtors to create a manageable repayment plan to pay off their debts over a period of three to five years without losing their property. This plan holds great significance for both the debtor and the creditor, as it enables the debtor to regain financial stability through an organized and structured approach, while also ensuring that the creditor is able to recover a portion of the owed amount. As a result, Chapter 13 Bankruptcy promotes a more favorable and fair outcome for all parties involved, contributing to overall financial market stability.


The Wage Earner Plan, more commonly known as Chapter 13 Bankruptcy, serves a significant purpose in providing a structured mechanism for financially troubled individuals to reorganize their debts and regain a stable financial footing. This type of bankruptcy is particularly designed for individuals with regular income who are struggling to repay their debts. The primary objective of the Wage Earner Plan is to allow debtors to create a manageable debt repayment plan, which typically spans a period of three to five years, based on their realistic income capabilities. Consequently, this grants debtors the opportunity to preserve their valuable assets, such as their home or car, from being seized or forfeited to meet the outstanding financial obligations.Chapter 13 Bankruptcy primarily aims to provide financial relief to individuals and sole proprietors who may not qualify for Chapter 7 Bankruptcy, which involves liquidation of assets to repay debts. Through the Wage Earner Plan, the debtor submits a repayment proposal to the bankruptcy court, which should outline how they plan to address their outstanding obligations while also meeting their basic living expenses. The assigned bankruptcy trustee evaluates the proposal, liaising with the debtor, creditors, and the court to formulate an approved consolidated repayment plan. Consequently, the debtor benefits from an extended duration and often a reduced debt burden, while creditors receive reassurance that they will recover a portion of the owed amount in a structured manner, over time. This bankruptcy option not only offers debtors a chance to regain financial stability and peace of mind but also encourages responsible financial behavior and disciplined debt repayment strategies.


1. Example 1: Joe’s Financial StrugglesJoe, a middle-aged man working at an automobile manufacturing company, has been facing financial difficulties due to unpaid medical expenses, high mortgage payments, and credit card debt. Despite working full-time, Joe is unable to repay his debts and maintain his living expenses simultaneously. To protect his home from foreclosure and avoid getting sued by creditors, he decides to file for Chapter 13 Bankruptcy, also known as the Wage Earner Plan. Under this plan, Joe proposes a repayment plan to the bankruptcy court, allowing him to repay his debts over a 3- to 5-year period, while still keeping his home and other assets.2. Example 2: Susan’s Small Business FailureSusan, a single mother, owns a small apparel store that has been hit hard by a recent economic recession. As a result, she has been unable to pay her rent, suppliers, and credit card debts. Susan also co-signed an auto loan for her college-going son, and monthly payments have been piling up. In this dire circumstance, Susan opts for Chapter 13 Bankruptcy. This Wage Earner Plan helps her restructure her debt repayment schedule and also protects her from losing her car. Susan regains control over her personal and business finances through this repayment plan and eventually emerges from bankruptcy when her business starts to recover.3. Example 3: David and Maria Overcome Financial CrisisDavid and Maria are a married couple with steady jobs, but they also carried a significant amount of unsecured debt due to excessive spending habits and a few unexpected life events. Over time, they found themselves drowning in credit card debt, making it difficult to meet their mortgage and car loan payments. To avoid losing their home and vehicles, they consult a bankruptcy attorney and decide to file for Chapter 13 Bankruptcy. The Wage Earner Plan allows them to create a restructuring plan for their loans, consolidate their payments, and pay off their debts gradually over an extended period. As a result, they can retain their property and regain control of their finances.

Frequently Asked Questions(FAQ)

What is a Wage Earner Plan?

A Wage Earner Plan, also known as Chapter 13 Bankruptcy, is a type of bankruptcy that allows individuals with a regular income to reorganize and repay their debts over a period of time while keeping their assets, such as their home or car.

How does a Wage Earner Plan work?

Under a Wage Earner Plan, the debtor proposes a repayment plan, typically lasting three to five years, to the bankruptcy court. This plan demonstrates how the debtor intends to use future income to repay some or all of the outstanding debts. The court must approve the plan before it goes into effect.

Who is eligible for a Wage Earner Plan?

Individuals with a regular income, unsecured debts below a certain threshold, and secured debts below a certain threshold are eligible for a Wage Earner Plan. Businesses are not eligible for Chapter 13 bankruptcy.

How does a Wage Earner Plan differ from Chapter 7 Bankruptcy?

The primary difference between Chapter 13 Bankruptcy and Chapter 7 Bankruptcy is that under a Wage Earner Plan, the debtor repays some or all of their debts over time, rather than having assets liquidated to pay off debts immediately. Chapter 13 Bankruptcy allows individuals to keep their assets while repaying their debts.

What responsibilities do debtors have under a Wage Earner Plan?

Debtors are responsible for proposing and adhering to the repayment plan approved by the bankruptcy court. This includes making regular payments to a court-appointed trustee, who distributes the funds to creditors. Debtors must also attend financial counseling sessions.

What happens if a debtor fails to complete the Wage Earner Plan?

If a debtor does not fulfill the obligations of their Wage Earner Plan, the court may dismiss the case or convert it to a Chapter 7 Bankruptcy case. In either scenario, the debtor may lose certain protections and assets they initially sought to keep.

How does a Wage Earner Plan affect a debtor’s credit?

Filing for Chapter 13 Bankruptcy will negatively impact a debtor’s credit report for seven years. However, many financial experts agree that rebuilding credit and financial stability is easier under a Wage Earner Plan than under Chapter 7 Bankruptcy, as the debtor demonstrates responsibility by repaying their debts over time.

Related Finance Terms

Sources for More Information

  • U.S. Courts –
  • Investopedia –
  • Nolo –
  • Credit Karma –

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