Can You Declare Bankruptcy if You Are Employed?
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Can You Declare Bankruptcy if You Are Employed?

Yes, you can >certainly declare bankruptcy if you are employed. Both main types of personal bankruptcy, Chapter 7 and Chapter 13, may be available for people whose incomes aren't enough to cover their debts.

In fact, Chapter 13 is commonly referred to as the "wage earner's plan" because it is designed for people with steady incomes who are looking to eliminate the negative influence of their debts.

To get in touch with a local bankruptcy attorney for a free consultation about the wage earner’s plan, simply fill out the quick information form below.

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Declaring Bankruptcy if You Are Employed

Chapter 13 bankruptcy is often called the reorganization plan because it allows filers to collect their debts into a single, simple repayment plan. Here's how this works:

  • After filing for Chapter 13, debtors work with the bankruptcy court to create a debt repayment plan based on their disposable income.
  • Chapter 13 filers continue to work during the bankruptcy process, making affordable monthly payments on their debt plan to a bankruptcy trustee.
  • The trustee distributes payments as needed to creditors, allowing filers to focus on their jobs and not worry about dealing with aggressive creditors.
  • If, at the end of three to five years, filers stay on top of their payments, they may receive a discharge of any remaining unsecured debts.

Chapter 13 is designed to help eliminate major debts, such as overdue mortgage or car loan payments. Another primary benefit of the wage earner’s plan is that, during bankruptcy, filers may be able to keep their cars or homes despite outstanding loan payments.

In theory, at the end of the Chapter 13 process, bankruptcy filers who are employed may be able to shed their debts while maintaining their jobs and keeping valuable items and property.

Other Benefits of Chapter 13 for Employed Filers

Declaring bankruptcy while being employed also comes with other perks derived from the automatic stay. This feature of bankruptcy may stop:

  • Wage garnishment
  • Home foreclosure
  • Collection actions by creditors
  • Harassing phone calls and letters related to debts

By throwing a wrench in the plans of hostile creditors, bankruptcy may allow filers to spend more energy keeping their jobs, while giving less attention to creditors’ collection tactics.

Filing Chapter 7 While Employed

Chapter 7 bankruptcy, the other common form of personal bankruptcy, may still be an option for you, even if you are employed.

In order to file Chapter 7, you must qualify under the means test, which looks in part at your income. If your household income is below the median income for a similar household size in your state, you'll likely be eligible to file Chapter 7.

To learn more about declaring bankruptcy if you have a job, contact a local bankruptcy lawyer today for further information.


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