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Chapter 13 Wage Earner Plans: A Great Bankruptcy Alternative, or a Trap?

 

A Chapter 13 Wage Earner Plan is a great alternative to Chapter 7 bankruptcy, but only for certain people.

First, you must be a resident of the United States to file under Chapter 13. Canadian residents should consider a consumer proposal.

Next, you must determine if you qualify for Chapter 13. (Because a Chapter 13 bankruptcy is paid for out of the wages you earn each month, Chapter 13 is also known as a Wage Earner Plan).

Since new federal bankruptcy rules became law in October, 2005, anyone who has gross income higher than the median income for their state is required to file bankruptcy under Chapter 13, instead of under Chapter 7. Do not fall into the trap of thinking you can file under Chapter 7; Chapter 13 may be your only option.

Before deciding on a Chapter 13 Wage Earner Plan, consider your other options.

Since a Chapter 13 plan will typically last for five years, you should explore any options that can be completed in less than five years. For example, if you can get a debt consolidation loan and repay it in three years, a debt consolidation loan is probably a better option for you than a five year Chapter 13 Wage Earner Plan.

If you don’t qualify for a debt consolidation loan, but you want to avoid the court process, and can afford to pay your debts in full over a three to five year period, credit counseling credit counseling may also be an option.

Finally, you may be able to cut your expenses and pay off your debts on your own.

A Chapter 13 Wage Earner Plan is designed to give you a fresh start, but remember, it’s a five year plan, and that can be a trap. Only agree to a five year repayment plan if you are confident that you can afford to make the payments.


Posted by Editor Bankruptcy Alternatives @ 6:12 pm
 

 


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