Navigating New Debt During Chapter 13 Bankruptcy: What You Need to Know

Understanding When & How You Can Take On New Debt While Managing Your Chapter 13 Repayment Plan

Filing for Chapter 13 bankruptcy can be a helpful way to get out of overwhelming debt without losing your assets. Taking on new debt during your Chapter 13 plan is not recommended by any means, but there are some circumstances where you have no other choice. In these cases, people wonder if new debt will be allowed and the answer is yes, but under strict guidelines

For the most part, new debt is not allowed while you are working through your Chapter 13 plan. However, bankruptcy trustees and the court system realize that the plan can take years to pay off so they make allowances for some debt acquisitions. A bankruptcy attorney can help you understand what new debt you will be able to take on and help you navigate it with your bankruptcy trustee. 

Types Of New Debt That Is Allowed During Chapter 13 Bankruptcy

For the most part, it is not encouraged for debtors to take on new debt during Chapter 13 Bankruptcy. However, certain types of debt are allowed under certain circumstances so the new debt doesn’t interfere with the current repayment plan. The types of debt that can be allowed with permission from your trustee are: 

• Utility Bill Debt
• Grocery Debt
• Medical Expenses Debt
• Urgent Medical Needs
• Necessary Car Repairs
• Some car loans
• Some mortgages

The Importance Of Pre-Approval For New Debt In Chapter 13 Bankruptcy

In almost all new debt situations, you will need to get permission from your trustee. This permission or pre-approval will not come easily and will only be given for special circumstances  limited to debt for everyday life needs. The trustee will also look at how the new debt will impact your current repayment plan in deciding to grant approval. 

For instance, if your vehicle is broken and needs to be replaced, but you cannot afford a new vehicle, you may be granted authorization to incur new debt for a new vehicle. The trustee will look at how your vehicle gets you to work everyday which allows you to keep paying off your debt. Taking these things into account, your pre-approval will be granted. 

In the same breath, you will not be pre-approved to replace your reliable car with something expensive and impractical like a sports car. There will be boundaries as to what the new debt will be for. If you want to consider new debt during your Chapter 13 plan, contact a bankruptcy attorney to determine if your request will be reasonable. 

Emergency Situations: Taking On Debt Without Approval During Chapter 13

There is an exception to needing pre-approval and that is in emergency situations. Some situations demand you to take on debt without any chance to get approval from your trustee. An example might be a sudden medical emergency which requires you to pay for a hospital stay or urgent care visit. In these circumstances, you will have to agree to pay without approval.

As soon as you can, you should let your trustee know that you have taken on this debt and under which circumstances. If it was a true emergency, the debt will be granted without consequences. 

Risks Of Acquiring Debt Without Proper Approval In Chapter 13 Bankruptcy

Taking on debt without pre-approval can lead to serious consequences affecting your Chapter 13 bankruptcy case. Avoid taking on debt you do not need and consult your bankruptcy attorney if you think taking on new debt is your only option. Some of the consequences include:

• Your Bankruptcy Case Could Be Dismissed: Taking debt without approval could lead to a complete dismissal of your bankruptcy case, allowing your creditors and collections agencies to start contacting you again and take action.

• You May be Denied Debt Discharges: If your case is not dismissed, you may be denied your discharge of debts at the end of your Chapter 13 bankruptcy plan. This means that you will be responsible for paying any remaining debt at the end of your case.

• Your Repayment Plan May Be Modified: The repayment plan that you and your bankruptcy attorney came up with and your trustee agreed upon may be modified. This modification could leave you with higher payments, or an extension of your plan.

• You May Face Penalties: You may also face penalties such as fines or other punitive actions as a result of your un-approved new debt taken on during your Chapter 13 bankruptcy plan.

Ensure Your Debt Acquisitions Are Taken on Responsibly With Help From Our Trusted Bankruptcy Attorneys!

If you are considering filing for Chapter 13 Bankruptcy, or you are working through your Chapter 13 payment plan and need to take on a new debt, let us help. Our Honolulu bankruptcy attorneys at Blake Goodman, P.C have an in-depth understanding of bankruptcy law and can help advocate for your rights during this difficult time.

Contact us today and get back on your feet through a Chapter 13 bankruptcy plan!