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Understanding the purpose of a wage earner plan

When we talk bankruptcy, a lot of readers in Florida probably picture liquidation of assets and starting over from the bottom up. While some Chapter 7 filings do mean handing over many of your assets, and don't always allow you to keep cars or homes, there are bankruptcy options that do allow you to keep some of your essential assets. In fact, Chapter 13 bankruptcy can be a legal tool that lets you organize your debt and hang on to your home.

Chapter 13 has been called a wage earner plan. Traditionally, to qualify to file a Chapter 13 petition, you have to have a stable and documented source of income. The court needs to see that you are both able and willing to make some type of regular payment on debt.

Through the Chapter 13 process, you work with a legal professional and through the bankruptcy court to create a debt payment plan. Both you and the creditors included in the plan agree that at the end of the repayment plan, the included debts will be discharged. That means you will have fulfilled your legal and financial obligation to those creditors.

A wage earner plan is designed to provide relief for an overwhelmed debtor while also providing some payment to a variety of creditors. Often, Chapter 13 is the option you have to use if you don't qualify for the income thresholds associated with Chapter 7 processes.

It's important to note that, as with all other types of bankruptcies, not all debt can be included in a wage earner plan. Some medical debts, tax debts, and student loan debts are often excluded. Working with a bankruptcy professional lets you identify what debt can be included and negotiate through legal channels for the best possible wage earner plan.

Source: Investopedia, "Wage Earner Plan (Chapter 13 Bankruptcy)," accessed Dec. 31, 2015

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