A recent change to the bankruptcy code could increase the number of filings by expanding protections to self-employed persons. President Biden recently signed legislation that extends by two years the debt limit for individuals filing under Chapter 13, also known as the wage earner’s plan. The law eliminates the previous distinction between unsecured and secured debt when computing the debt limit.
In addition, the debt limit increases from $1.2 million to $2.75 million. Prior to the legislation, an individual’s unsecured debts could not exceed $465,275; secured debts could not $1,395,875. The increased limits will expire on June 21, 2024.
Understanding the wage earner’s plan
Chapter 13 of the Bankruptcy Code permits only individuals with regular income to develop a plan to repay their debt over three to five years. Protection from foreclosure ranks as perhaps the most advantageous provision of this chapter. Within 14 days of filing a petition, a debtor must file repayment plans with the trustees.
Regardless of whether the court has approved the repayment plan, a debtor must begin making payments to the trustee within 30 days. Discharge releases the debtor from all debts under the plan. In unforeseen circumstances, such as injury or illness that limits employment, the court may grant a hardship discharge.
The issues underlying a claim for bankruptcy can impact not only an individual’s bottom line, but also their mental health. One bad decision or fluctuating economic changes should not determine the trajectory of a person’s whole life. An attorney with a knowledge of how to make bankruptcy code work for a specific situation can help people understand their options for returning to financial health.