Section 4: Borrowing Money and Incurring New Debt
Navigate financial decisions like borrowing money or incurring new debt during bankruptcy. We guide you through various scenarios, including buying a car with cash or financing, refinancing or buying a home, and more.
Can I buy a car for cash while in Chapter 13 without permission from the Court?
If you’re in a Chapter 13 bankruptcy, knowing that your financial decisions are under the bankruptcy court’s supervision is essential. This includes significant purchases like a car, even if you plan to pay for it in cash.
Sometimes, you may need permission from the bankruptcy trustee or the Court before making such a purchase. This is because the Court or the Trustee needs to ensure that the purchase won’t interfere with your ability to make Chapter 13 plan payments. Additionally, the source of the funds you plan to use to purchase the cash may involve questions relating to your disposable income.
Suppose you’re considering buying a car for cash while in Chapter 13; discussing this with your bankruptcy attorney first is best. If necessary, they can guide you in requesting permission from the Court and help you understand how this purchase might affect your bankruptcy case.
Remember, this is a general guide. If you’re a current client and have questions, try looking through these answers first; they’re made to answer frequent questions, but your specific situation may vary. If you still need help, call the office at the top of this page nearest you or email your paralegal directly. Our team is ready to help you; if needed, we can set up a meeting with your attorney. Always consult with your bankruptcy attorney for personalized advice.
Can I finance a car purchase while in Chapter 13? If so, what’s required?
You can be given authority to finance a car purchase while in Chapter 13 bankruptcy; however, it requires added steps. You’ll need permission from the Chapter 13 Trustee or the Bankruptcy Court before taking on new debt, including a car loan. Check out this PDF to see the general guidelines for Applications and Motions to Incur Debt.
Here’s a general idea of the process:
- Find a Lender: Not all lenders will be willing to supply a loan to someone in Chapter 13 bankruptcy, so you’ll need to find one that does. They’ll typically want to see that you’ve made your bankruptcy payments on time and have a stable income.
- Get a Sample Financing Agreement: Once you’ve found a willing lender, get a sample financing agreement from them. This should include the loan terms, such as the interest rate, monthly payment, and loan length.
- Motion to Incur Debt: Your attorney must file a “Motion to Incur Debt” with the bankruptcy court. This motion should include the financing agreement and explain why you need the car.
- Wait for Approval: The Court will review your motion. If they believe the car is necessary and the loan terms are reasonable, they’ll likely approve it. This process can take a few weeks.
- Adjust Your Payment Plan: If the Court approves your motion, your Chapter 13 payment plan may need to be adjusted to account for the new debt.
Remember, this is a general guide. If you’re a current client and have questions, try looking through these answers first; they’re made to answer frequent questions, but your specific situation may vary. If you still need help, call the office at the top of this page nearest you or email your paralegal directly. Our team is ready to help you; if needed, we can set up a meeting with your attorney. Always consult with your bankruptcy attorney for personalized advice.
What do I need to do if I need to borrow money for a replacement vehicle while I am in Court?
If you’re in a Chapter 13 bankruptcy and need to borrow money to get a replacement vehicle, you’ll need to follow a specific process. This is because when you’re in a Chapter 13 bankruptcy, you’re under the Court’s and trustee’s supervision. They need to ensure that any new debt you take on won’t interfere with your ability to make your Chapter 13 plan payments. Here are the general guidelines for Applications and Motions to Incur Debt: INCLUDE LINK TO PDF FOR – Guidelines and Application to Incur Debt for Vehicles
Here’s the general process you’ll need to follow:
- Find a Lender and a Vehicle: First, you’ll need to find a lender willing to give you a loan while in Bankruptcy. You’ll also need to find the vehicle you want to purchase. Make sure the vehicle is reasonably priced and necessary for your situation. The Trustee and the Court may not approve luxury or overly expensive vehicle requests.
- Get a Loan Quote: Once you’ve found a lender and a vehicle, get a quote for the loan. The quote should include the interest rate, the loan length, the monthly payment, and the total cost of the loan with interest.
- Contact Your Bankruptcy Attorney: You must contact your bankruptcy attorney. They must file either an application with the Chapter 13 Trustee or a motion with the Court to get approval for the loan. This is often called an “Application or Motion to Incur Debt.”
- Your Attorney Files the Application or Motion: Your attorney will prepare the motion, including the loan details and why it’s necessary. We will then submit it to the Chapter 13 Trustee or file it with the Bankruptcy Court.
- The Trustee and Court Review the Application/Motion: The Chapter 13 Trustee and the Bankruptcy Court will review the application or motion. They will examine your financial situation, Chapter 13 plan, and loan details. They must ensure that taking on this new debt will allow them to complete your Chapter 13 plan.
- The Trustee or Court Decides: If the Trustee and Court agree that the loan is necessary and won’t interfere with your bankruptcy plan, they will approve the motion. They will only accept the motion if they think the loan is necessary and affordable.
Remember, this is a general guide. If you’re a current client and have questions, try looking through these answers first; they’re made to answer frequent questions, but your specific situation may vary. If you still need help, call the office at the top of this page nearest you or email your paralegal directly. Our team is ready to help you; if needed, we can set up a meeting with your attorney. Always consult with your bankruptcy attorney for personalized advice.
Can I buy or refinance my home during my Chapter 13 case?
Buying a new home or refinancing your existing home is possible but can be challenging during Chapter 13. Here are the general guidelines for Applications and Motions to Incur Debt for Non-Vehicles.
Here are some important considerations:
Buying a New Home:
If you’re in an active Chapter 13 case, you’ll need permission from the bankruptcy court before buying a new home. You’ll need to file a motion with the Court, explaining why you need to purchase a new home and how it aligns with your financial goals and the Chapter 13 plan. The Court will review your motion and decide, based on your ability to afford the new mortgage payments and whether it will affect your ability to complete the Chapter 13 plan.
Refinancing Your Home:
Refinancing your existing home during Chapter 13 can also be challenging. You’ll need to obtain court approval by filing a motion explaining the reasons for the refinance, such as obtaining a lower interest rate or reducing monthly mortgage payments. The Court will consider several factors, including your ability to afford the new mortgage terms and whether the refinance aligns with your Chapter 13 plan.
In both cases, it’s essential to consult with your bankruptcy attorney before proceeding with any home-related transactions. They will guide you through the process, help you prepare the necessary documents, and ensure compliance with bankruptcy laws and court procedures.
Remember, this is a general guide. If you’re a current client and have questions, try looking through these answers first; they’re made to answer frequent questions, but your specific situation may vary. If you still need help, call the office at the top of this page nearest you or email your paralegal directly. Our team is ready to help you; if needed, we can set up a meeting with your attorney. Always consult with your bankruptcy attorney for personalized advice.
Can I get a student loan while I’m in Chapter 13?
When amid a Chapter 13 bankruptcy, you might wonder if you can still take out a student loan. In general, the answer is yes. However, there are some essential factors to consider. Here are the general guidelines for Applications and Motions to Incur Debt.
Chapter 13 bankruptcy, also known as a wage earner’s plan, allows individuals with regular income to develop a plan to repay all or part of their debts. During this process, debtors propose a repayment plan to make installments to creditors over three to five years.
Now, when it comes to student loans, they are treated as nonpriority unsecured debts in Chapter 13 bankruptcy. This means they’re on the same level as credit card debt, medical bills, and personal loans. During your Chapter 13 bankruptcy, you’ll be making payments toward your debt according to your repayment plan, and your student loans will receive a portion of these payments.
However, in Chapter 13 bankruptcy, you’re under the bankruptcy court’s jurisdiction. If you want to incur new debt, such as a student loan, you’ll likely need the Chapter 13 Trustee’s or the Court’s permission first. The Chapter 13 Trustee or the Court will examine your ability to repay the new debt, how the education will improve your income potential, and whether the new debt will interfere with your current repayment plan.
While you can get student loans during Chapter 13 bankruptcy, the terms might need to be more favorable. Federal student aid might still be available, but private lenders might be more hesitant, require a cosigner, or offer higher interest rates.
Remember, this is a general overview; the specifics can vary based on your circumstances and local laws. If you’re a current client and have questions, try looking through these answers first; they’re made to answer frequent questions, but your specific situation may vary. If you still need help, call the office at the top of this page nearest you or email your paralegal directly. Our team is ready to help you; if needed, we can set up a meeting with your attorney. Always consult with your bankruptcy attorney for personalized advice.
What do I need to do if I need to borrow money for something other than a vehicle while I am in my case (Student Loans, Home Loans, Other Loans)?
Borrowing Money during a Chapter 13 bankruptcy case is a topic that requires careful consideration. It’s important to understand that when you file for Chapter 13 bankruptcy, you’re agreeing to a repayment plan that lasts three to five years. You’re generally only allowed to incur new debt with the Trustee’s or the Court’s permission during this time. This includes student loans, home loans, or other types of loans.
If you need to borrow money for something other than a vehicle, you’ll need to go through a process known as “Application or Motion to Incur Debt.” This process involves seeking approval from the bankruptcy court and proving that the new debt will not interfere with your ongoing bankruptcy payments. Here are the general guidelines for Applications and Motions to Incur Debt for Non-Vehicles.
Here are the steps you need to follow:
- Consult with your bankruptcy attorney: Your attorney can guide you through the process and help you prepare the necessary documents.
- Prepare a detailed explanation: You’ll need to explain why you need to incur new debt. This could be for education, home repairs, or other necessary expenses.
- Document your ability to pay: You must show you can manage the added debt. This might involve supplying information about your income, expenses, and repayment plan.
- Apply with the Chapter 13 Trustee or a motion with the Court: Your attorney will help you submit an application to the Trustee or file a motion to incur new debt with the Bankruptcy Court. This application or motion will include all the information you’ve gathered.
- Hearings are generally not required: The Chapter 13 Trustee or the Judge will review your application or motion; typically, a hearing is not required. However, suppose an objection or opposition is filed to your request. In that case, you may have to attend a hearing and answer questions about your financial situation and the need for additional debt.
- Wait for the Trustee or the Court’s decision: You can obtain the loan if the Trustee or Court approves your motion. If the Trustee denies your request, the Court may approve it; however, you must explore other options if Court denies your motion.
Remember, this is a general overview; the specifics can vary based on your circumstances and local laws. If you’re a current client and have questions, try looking through these answers first; they’re made to answer frequent questions, but your specific situation may vary. If you still need help, call the office at the top of this page nearest you or email your paralegal directly. Our team is ready to help you; if needed, we can set up a meeting with your attorney. Always consult with your bankruptcy attorney for personalized advice.
