Chapter 13 Bankruptcy And Wage Earner Plans

Most Americans have some level of debt. This might be in the form of a mortgage, a student loan, or credit cards that are difficult to pay down. In times of hardship, trying to manage debt in addition to daily expenses may be the weight that tips the scale and makes your monthly payment impossible to float.

For working indivudlas that are in over their head, Chapter 13 is the recommended course of action. Through Chapter 13, individuals have the opportunity to restructure their debt, even have some of it forgiven, formulate a payment plan that allows them to pay expenses over the course of 3-5 years.

However, Chapter 13 isn’t for everyone and not all individuals qualify. Below we have made a simple list in plain English terms to help you determine if Chapter 13 might be right for you.

Who Qualifies

Chapter 13 bankruptcy is known as a “wage earners” plan. This, along with a few other factors outlined below, determines whether or not you are eligible to file.

  1. You Must Earn a Wage
    When you file for Chapter 13 bankruptcy, you are entering a repayment plan. For the bankruptcy courts to trust your participation in regular debt repayment installments, you must have proof of a steady income. Without meeting this qualification, you will not be eligible and instead would file for Chapter 7 Bankruptcy.
  2. You Must Be Under the Debt Threshold
    A debt threshold is the maximum level of debt you can have while still remaining eligible for filing Chapter 13. Not all debt, however, is equal. As such, there is a different threshold for each kind of debt.
      - Secured Debt Threshold: $1,257,850
    This category of debt is any kind of loan that has collateral should you default. Common examples include mortgages and car loans.
      - Unsecured Debt Threshold: $419,275
    On the other end, this type of debt is not backed by collateral. Common examples here include student loans, medical bills, and credit card debt.
  3. You Must Be an Individual
    Chapter 7 and Chapter 13 are both bankruptcy plans that are made for individual filing only. This means if you are a corporation or even a sole proprietor, you will not be eligible to file.

Ohio Bankruptcy Exemptions

When you file for Chapter 13, one of the largest upsides is that it aims to allow you to keep your property. Part of this perk is through the use of exemptions: portions of your property and belongings that are exempt from the bankruptcy process.

While the following list is non-exhaustive and there are several more options potentially available to individuals, it reflects some of the most common, and helpful, exemptions that can be applied.

  • Homestead
    $145,425 in home equity of you place of residence is qualified for a homestead exemption
  • Personal Property
    There are several divisions of personal property and each has their own exemption amount. Those which are of most concern to bankruptcy filers are the $13,400 household goods exemption, $,1,700 jewelry exemption, and the $4,000 motor vehicle exemption.
  • Wages
    Wages are exempt, but only to a point. The current standard is that either 30 times the minimum federal hourly wage or 75% of your disposable income is exempt. Whichever is greater is the exemption that takes precedence.
  • Pensions
    In this category you will find IRAs, Roth IRAs, private pensions, and tax exempt retirement accounts such as 401(k), 403(b), and profit-sharing

Note for couples filing jointly that both have interest in their possessions, these exemptions apply to both individuals. This process is known as “doubling” and effectively doubles the exemption amount for which your household qualifies.

How do Payments Work

Chapter 13 in Ohio works very similarly to bankruptcy proceedings around the nation. Central to this process is the development of a payment plan. This plan encopasses all the debt you must repay and outlines what you will owe to your trustee on a monthly basis.

While you and your attorney will devise a plan that works with your income, the plan is not made official until the Court approves.

Your Bankruptcy Attorney

I became a bankruptcy attorney because I had to file for bankruptcy, too. It's a personal passion of mind to help people get to a better place in their life because I know what it feels like to be suffocating under a mountain of crippling debt with nowhere else to turn.

As an attorney, I also know the nuances of law and can help people get the most out of their filing.

As someone who has been on both sides of the bankruptcy process, I am dedicated to helping individuals regain control of their debt. Contact us at (216) 241 2510 to speak with a bankruptcy expert in Cleveland, Ohio.

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