Chapter 13 bankruptcy focuses on paying creditors over up to five years from the debtor's earnings. The debtor submits a budget setting forth wages, taxes, and ordinary living expenses. The excess of income over expense (“disposable income”) is paid to the Chapter 13 bankruptcy trustee each month, who in turn pays creditors.
Chapter 13 is limited to debtors with regular monthly income. Usually this means the debtor has a steady job and is paid salary or wages on a regular basis. There are also limits on the amount of debt (as of April 2016, no more than $394,725 of unsecured debt and no more than $1,184,200 of secured debt).
Chapter 13 is particularly useful when the debtor has secured loans, intends to keep the property, and just needs time to get caught up on payments.
An individual operating a small business that is a sole proprietorship can use Chapter 13 if the business generates regular income. A small business is a sole proprietorship if it is not incorporated, is not a limited liability company, and is not a partnership (other than an informal partnership between a husband and wife). In this case, the debtor/sole proprietor is personally liable for all of the business debts.
Once payments under a Chapter 13 plan are completed, most debts are discharged except for domestic support obligations; most student loans; certain taxes; most criminal fines and restitution obligations; certain debts for acts that caused death or personal injury; and certain long term secured obligations.
With few exceptions, individuals must complete credit counseling before filing any form of bankruptcy. Individuals must complete a personal financial management course with an approved provider after filing bankruptcy but before the bankruptcy discharge is scheduled to issue.
Law Office of Stephen K. Haynes
CHAPTER 13 - WAGE EARNER PLAN