While a Chapter 7 bankruptcy can provide you with a discharge of your nonpriority unsecured debts within a few months of filing your bankruptcy petition, a Chapter 13 bankruptcy is a much longer process. During the course of your three to five year plan, you may need to incur new debt to buy a vehicle or pay for medical expenses. However, you will need to be careful about incurring new debt and follow the proper procedures with the bankruptcy court.
Why Should You Avoid New Debt While in Bankruptcy?
You should not take on any new debt in bankruptcy unless it is necessary because this could interfere with your ability to make plan payments. If you miss your plan payments, you may not receive your discharge, which defeats the primary purpose of your bankruptcy.
Taking on some new debt may be unavoidable. If you have unexpected medical expenses, you may not have a choice, but to take on new debt. The same situation could arise if you need a new car to commute to work or if you need to repair your car or home.
The bankruptcy trustee will generally not want you to take on new debt. They are responsible for looking out for the creditors listed in your bankruptcy schedules, and claims from new creditors could interfere with your ability to make your plan payments.
How to Get Approval to Incur New Debt
You should generally get approval from the trustee if you need to incur new debt during your Chapter 13 repayment period. You should be prepared to show the trustee the following:
- You have kept up with all of your plan payments so far
- The new debt is for a necessity, not a luxury
- You have the financial means to make plan payments and incur the new debt
It could take 14 days to get the court’s approval, so don’t wait until the last minute if you know you will need to make a purchase on credit in the near future. If you have an emergency expense, such as medical bills, you may not be able to wait for court approval, but let your trustee know as soon as possible about your new debt.
Taking on new debt without telling the bankruptcy court or the trustee could interfere with your plan or get your case dismissed. Ask your bankruptcy attorney if you aren’t sure about your ability to incur new debt while in bankruptcy.
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