What is a Wage Earner Plan?

A wage earner plan, subsequently known as Chapter 13, is a bankruptcy protection scheme that allows income earners to satisfy outstanding debts -- in whole or in part -- within a specific time frame.

How Does a Wage Earner Plan Work?

In a Chapter 13 bankruptcy -- formerly called a wage earner plan -- a person petitions the court to reduce the total amount owed and provide a reasonable repayment schedule based on his or her income. Similar to a Chapter 7 bankruptcy, the debtor gets legal protection from lenders’ collection attempts. Moreover, a debtor is allowed to keep outstanding assets provided that he or she adheres to the repayment framework set forth by the court.

Why Does a Wage Earner Plan Matter?

When it was first devised, only individuals with a consistent paycheck could qualify for Chapter 13 bankruptcy (hence the name 'wage earner plan'). Today, small business owners and commission-based sales professionals also qualify for bankruptcy protection under Chapter 13.