According to USA Today, nearly three-fifths of all debtors stated that medical expenses were a major contributing factor in the decision to file for bankruptcy. More than half of all American adults have “significant” medical debt, with nearly a quarter of the population owing more than $10,000 in medical debt.
The decision to file for bankruptcy and the actual filing process, can significantly affect your emotional health. Since most people who file for bankruptcy have never been through the process and never expected to find themselves in this position—feelings of stress, depression, anxiety, uncertainty, and even failure can occur.
It is important to know that bankruptcy could well turn out to be one of the best decisions you may make in your life, providing relief from debt and giving you a second chance at a positive financial future. Unfortunately, despite the fact that bankruptcy is often the result of medical debt, social stigma remains a factor for most bankruptcy filers. We live in a culture that equates bankruptcy with bad spending outcomes.
Remember, bankruptcy is a tool that is meant to protect debtors from crushing debt and hardcore creditors who call their homes and workplaces multiple times a day. Rather than thinking of your debt as a shameful outcome, consider it a fresh start. To help that fresh start along, an experienced bankruptcy attorney from Horwitz & Horwitz can guide you through the process in the smoothest way possible.
What is a Chapter 13 Wage Earner Plan?
Chapter 13 is also known as bankruptcy’s “wage earner plan.” In the beginning, “wages” referred to income received from a place of employment. Chapter 13 bankruptcy was previously the option for those with a job who simply could not make ends meet. Through the years, the definition of a wage earner has expanded to include income from any source, including retirement plans, disability payments, and self-employment income.
Many people who do not qualify for Chapter 7 bankruptcy may qualify for Chapter 13. Chapter 13 has the power to stop repossession and foreclosure and can, over time, help filers improve their credit scores while achieving financial stability. A Chapter 13 wage earner’s plan requires installment payments made to creditors over a three to five-year period. During the time the Chapter 13 wage earner’s plan is in place, creditors are not allowed to start or continue collection efforts.
Who is Eligible for a Wage Earner Plan?
Any individual, even those who are self-employed or those who operate an unincorporated business is eligible for Chapter 13 relief as long as that person’s total secured debts do not exceed $1,149,525 and the unsecured debts do not exceed $383,175. Secured debts include auto loans, home mortgages, and any other loan that requires a pledged collateral to secure payment. For example, if you borrowed $40,000 and put up land as collateral, then if you default on that loan, the holder of the loan can take the property. Unsecured debt includes things like medical bills, credit cards, and any debt that you have not pledged a specific asset as security for the debt.
You are ineligible for a Chapter 13 bankruptcy if you are prohibited because of a prior bankruptcy filing. You must allow the required amount of time to pass if you dismissed debt in a Chapter 7 bankruptcy during the prior four years or in a Chapter 13 bankruptcy during the prior two years. If you had a Chapter 13 or Chapter 7 bankruptcy petition discharged within the past three months because you deliberately disobeyed a court order, failed to show up in court, or asked that the case be dismissed after a creditor sought the court’s permission to lift an automatic stay, you are ineligible to file Chapter 13 bankruptcy.
You must have a copy of your debt management plan to submit to the court if one was developed by a credit counseling organization. The certificate must be submitted with your original paperwork or submitted within 15 days after filing for Chapter 13 bankruptcy. You must prove you have filed both state and federal income tax returns for the previous four years.
What Are the Pros and Cons of a Wage Earner Plan?
The benefits of filing a Wage Earner Plan include:
- Although it takes longer to pay off your debts, your payments are more flexible, and you are given more time to make the payments.
- Once you successfully complete your Chapter 13 repayment plan, creditors cannot obligate you to pay them in full.
- As long as you make the payments you agreed to in your Chapter 13 repayment plan, you can keep any property you are making payments on.
- While Chapter 13 adversely affects your credit for several years, so do late payments, defaults, repos, and lawsuits.
- You can likely obtain new lines of credit within three years from the date you file Chapter 13.
- The sooner you file a Wage Earner Plan, the sooner you can begin rebuilding your credit.
- You can file for Chapter 13 repeatedly, although each filing will appear on your credit history.
Some potentially negative aspects of filing a Wage Earner Plan include:
- It can take up to five years to fully repay your debts under a Wage Earn Plan.
- Debts must be paid from your “disposable” income, which is income you have left after paying for necessities like food, shelter, and medical care.
- A Chapter 13 Wage Earner Plan bankruptcy can stay on your credit report for up to ten years.
- It can be difficult to obtain a mortgage (if you don’t already have one) following a Chapter 13 bankruptcy.
- You will lose all your credit cards.
- If you have filed for Chapter 13 bankruptcy within the past six years, you are ineligible to file for Chapter 7 bankruptcy.
- Neither Chapter 13 bankruptcy nor Chapter 7 bankruptcy relieves you from certain obligations like child support, alimony, and student loan debt.
Why You Should Hire an Experienced Attorney to Help You Navigate Bankruptcy Options
When you choose a highly skilled bankruptcy attorney from Horwitz & Horwitz, you have taken an important first step toward getting a fresh financial start. Our attorneys understand that bad things happen to good people. We want to extend a hand and a lifeline when you need it most, as we are dedicated to helping those facing financial difficulties. A knowledgeable attorney will handle your Chapter 13 Wage Earner Plan bankruptcy from start to finish.
Each meeting, call, and appointment will be with your attorney—we do all the work and never “hand you off” to a paralegal or other staff member. We develop strong, positive relationships with each client and are committed to being available to you when you need us most. After answering all your questions comprehensively, we will explain the pros and cons of filing Chapter 13 and then help you make the best decision for your unique situation. Together, we will come up with a solution that fits your needs and goals. Contact Horwitz & Horwitz today.