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For Americans, a Chapter 13 Wage Earner Plan is a leading bankruptcy alternative
   

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What is a Chapter 13 Bankruptcy, and should I file a Chapter 13 Wage Earner Plan

 
 

For individuals in the United States, there are two basic forms of personal bankruptcy. Chapter 7 bankruptcy, also known as a liquidation bankruptcy, discharges your debts in a relatively short period of time.

On October 17, 2005, new federal bankruptcy law in America requires anyone whose gross income is higher than the median income for their state to file bankruptcy under Chapter 13, instead of under Chapter 7.

The Chapter 13 bankruptcy plan must run for five years so that the unsecured creditors (such as the credit card companies that lobbied heavily for the new law) receive a certain level of repayment.

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.

Should I file a Chapter 13 plan, or explore the other bankruptcy alternatives?

The answer depends on your circumstances. If your income is higher than the average income for your state, you cannot file a Chapter 7 bankruptcy, so that decision is made for you.

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, that is probably a better option for you than a five year Chapter 13 plan.

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

Finally, you may be able to cut your expenses and work it out yourself.

The court process is never fun, and you will want an attorney's assistance, which will increase the cost, so only choose a Chapter 13 plan if it is the best option for you.

 


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