Taking on Additional Debt in Chapter 13 Bankruptcy
Roughly 800,000 people filed for bankruptcy in 2016. In a Chapter 13 case, you are allowed to reorganize both secured and unsecured debts and pay them back over a period of three or five years. In some cases, you are allowed to incur a post-petition debt if a trustee approves. Contact a Burlington County bankruptcy attorney for help with your Chapter 13 bankruptcy case.
The Debt Must Be for a Legitimate Purpose
To be approved for a new loan or to accrue new debt after filing for Chapter 13 bankruptcy, the money must be used for a legitimate need. For instance, it may be possible to borrow money to buy a car to get to work. The loan would likely be approved if not having reliable transportation led to a job loss and an inability to make plan payments.
The Balance Must Not Be Excessive
Generally speaking, you won’t be allowed to borrow more than necessary to complete a transaction. For example, if you are looking to buy a new car, you probably won’t be allowed to buy a luxury vehicle to get to work. Instead, you will likely be restricted to buying the least expensive vehicle that provides safe and reliable transportation.
The Creditor Must Consent to Being Part of a Payment Plan
A creditor must file a proof of claim that acts as its consent to being part of a reorganization repayment plan. Secured creditors are likely to give their consent as it can take steps to foreclose or repossess property after the bankruptcy ends. Unsecured creditors are likely to consent because they won’t have to wait as long to start receiving payments.
However, this may not be the case if the creditor believes that a remaining debt balance would be discharged at the conclusion of the repayment period. In most cases, priority creditors will consent to the addition of new debt as they will get paid first in any scenario. A bankruptcy attorney may provide more insight into how creditor approval could impact your quest to obtain a loan during an ongoing case.
Trustee Approval May Not Always Be Necessary
In most cases, a bankruptcy court will not approve a new debt unless the trustee has issued his or her approval. However, there may be times when you can’t get trustee approval in a timely manner. For instance, you may need to pay a tax bill or an emergency medical expense. In such a scenario, a judge may agree to allow you to borrow money to cover those and similar bills.
Some Lenders Specialize in Working With Debtors in Bankruptcy
To improve your chances of getting a loan, it may be best to work with lenders who have experience with borrowers subject to a repayment plan. These lenders may be able to guide you through the process of obtaining an offer sheet that is detailed as possible.
This is important as the trustee and the judge will want to see the loan’s term, balance and interest rate before making an approval decision. Working with subprime lenders can also be helpful as they can craft repayment terms that can be tailored to your needs.
The Final Step Is to Amend Your Current Repayment Plan
If a judge does give approval to take on a new debt in a Chapter 13 case, the payment plan will need to be changed to reflect your new liability. It will also be amended to show your new monthly plan payment and how it is distributed to your creditors. Once the amended plan has been put in place, you will be required to follow it until completion unless further modifications are made.
If you need a bankruptcy attorney to represent your interests, don’t hesitate to contact the legal representatives at Neuner & Ventura LLP. You can contact us about post-petition debt by calling our office in Marlton, NJ, at (856) 596-2828. You can also use the contact form on our website or see us personally at Willow Ridge Executive Office Park.