Wage Earners Reorganization (Chapter 13 Bankruptcy)

If you have a steady income and more debt than you can handle, a wage earner’s reorganization (Chapter 13 bankruptcy) may offer a way for you to get ahead of your payments. A Chapter 13 bankruptcy petition can silence creditors and discharge and restructure your debts, so you can make your payments, and come out ahead.

What is Chapter 13 Bankruptcy?

A Chapter 13 bankruptcy, sometimes known as a “wage earner’s reorganization,” is a way for you to repay part of your debt while discharging the rest. This is generally done through installment payments paid to the Bankruptcy trustee and distributed to your creditors over a period of three to five years, though there are many possible variations. Generally speaking, if your household’s monthly income is less than the state median, the payment plan will last for 3 years. Those making more than the state median can expect the plan to extend for 5 years. At the end of the plan, any qualifying unpaid debts are discharged, allowing you to move forward without unpaid debt weighing you down.

Do You Qualify to File a Wage Earners’ Reorganization?

Almost certainly. Unlike chapter 7, which has an income-based eligibility requirement, the eligibility requirements for a Chapter 13 bankruptcy mainly consist of secured and unsecured debt limitations, which are quite large. So most consumers with debt can give it a try. The biggest challenge for many debtors is demonstrating that their proposed chapter 13 plan is feasible so that it can be “confirmed”, or made binding upon their creditors. While wages or salary are the most common income sources, you can also include your spouse’s income (even if they are not joining the petition), business income, and contributions from relatives. You must be able to show that you will earn enough money to pay:

• Secured debts that will survive the bankruptcy process (such as mortgages)
• Priority debts such as child support, alimony, and non-dischargeable tax debt
• Unsecured debts up to the value of the non-exempt property you are protecting

What are the Benefits of Filing a Chapter 13 Bankruptcy?

Bankruptcy in general can offer many benefits to debtors in over their heads financially. While no one bankruptcy program is better for every debtor, a Chapter 13 bankruptcy offers several advantages over a Chapter 7 liquidation bankruptcy.

Automatic Stay on Collections Cases

Both Chapter 7 and Chapter 13 bankruptcy petitions trigger an “automatic stay” when filed with the bankruptcy court. This stay immediately stops collection activities by creditors. However, while a Chapter 7 bankruptcy proceeding lasts months, the automatic stay in a Chapter 13 bankruptcy extends until the repayment plan is complete after three to five years. This longer window gives debtors more time to reorganize their debts and catch up on missed payments before their secured debts and non-dischargeable debts come due.

Protect Your Assets While Obtaining Debt Relief

Unlike a Chapter 7 bankruptcy, a Chapter 13 bankruptcy does not require you to liquidate any of your assets. Many Connecticut residents file a Chapter 13 bankruptcy so they can protect their assets from creditors while still obtaining debt relief. Rather than using your existing assets to satisfy unpaid debts, a Chapter 13 bankruptcy is forward-looking. It involves a promise that you will put all your disposable income toward paying off creditors in the years to come. However, the entire process is voluntary. You have the right to dismiss your case at any time if your plan is not working out.

Use Mortgage Payments to Offset Other Debt

One challenge bankruptcy petitioners face is that secured debt – such as mortgage payments or car loans – is not discharged in bankruptcy. However, when your Chapter 13 bankruptcy attorney crafts your repayment plan, they can include those payments in your monthly budget, prioritizing them over other unsecured, dischargeable debts. As a result, you can use these ongoing payments to offset other debt, increasing the total value of debt discharged, while giving you time to catch up and become current on your secured payment obligations.

How Wage Earner’s Reorganization Can Help Save Your Home from Foreclosure

Many Connecticut residents opt for a Chapter 13 bankruptcy because it can stop home foreclosure and allow you to keep or sell your home on your terms. If a foreclosure has begun, you should contact us as soon as possible prior to the law day or foreclosure sale. In a typical "cure and maintain" plan, you will pay all mortgage payments as they come due after filing, and will pay off the unpaid arrears as part of the Chapter 13 repayment plan. When the wage earner reorganization plan is complete, your mortgage will be current, and you can keep your home.

If you have a second mortgage, a home equity line of credit (a HELOC), or certain judgment liens, and your home has decreased in value, you may be able to avoid paying those debts completely. If the bankruptcy court determines your property’s value is less than the balance of your first mortgage, the court will find that the second mortgage is wholly unsecured. It will be treated just like your other unsecured debt, and discharged upon completion of the plan.

Chapter 13 Bankruptcy Attorney Near Hartford and Litchfield County, Connecticut

The bankruptcy lawyer at Lawrence & Jurkiewicz, LLC represents clients throughout the greater Hartford area and the Litchfield County area. We help individuals and families gain control of their debt. We know one size doesn’t fit all when it comes to bankruptcy. We will meet with you to review your financial circumstances and help you decide whether to file for a Chapter 13 bankruptcy. We want to help you make the right decision for you and your family. Please call (860) 264-1551 or contact us for a free consultation.