Acquiring New Debt During Chapter 13 Bankruptcy

Are you currently in a chapter 13 bankruptcy and wondering if you can obtain a new loan?
Acquiring New Debt During Chapter 13 Bankruptcy

Bankruptcy is not something anyone looks forward to going through, but between job loss, medical bills, and unexpected emergencies it’s a reality that many Americans are finding themselves faced with. We all know that getting financing with a bankruptcy on your credit report can be very difficult because it stays on your credit report for ten years. So just how difficult is it to acquire new debt while still going through the process of a chapter 13 bankruptcy?

Well, I’d like to tell you it is a stroll through the park on a sunny Sunday afternoon, but unfortunately, that is not the case. The fact is there are many steps that go into getting special financing for an auto loan. The first is, you must gain approval from your bk trustee. In order for your trustee, or the court, to agree to you getting a new car, house or personal loan, they will consider the following factors:

  • You must be current on your bankruptcy plan payments
  • Are asking for consumer or business credit
  • Why do you want to incur this debt
  • Any impact it will have on your ability to repay your chapter 13 plan

Consumer Credit and Chapter 13 Plans

Generally, the most common type of credit you would be applying for would be consumer credit. This includes any situation where you would be taking out a loan; buying a home, financing a vehicle, taking out a credit card, etc. It is not likely that the trustee or court will approve a consumer credit request unless you can prove that it’s an emergency or there are special circumstances where it is absolutely needed.

If you were to go behind your trustee’s back and sign for a loan without permission, your case will be dismissed from the court and you will not have completed the bankruptcy successfully. This is not something that you typically have to worry about because most creditors will not deal with a bk consumer, let alone draw up paperwork for you to sign until they see authorization from a trustee.

As stated earlier, if you can prove that this is an emergency, or there are special circumstances to your case, your request for a loan may be approved, but with specific terms. The bankruptcy judge has the right to state the maximum interest rate they can offer you, and sometimes even maximum monthly payment.

Genuine Emergencies
Most emergencies don’t allow time to call your trustee and gain an approval before signing any paperwork, and if there is a genuine emergency, then your trustee won’t expect you to call them first, but they will expect you to contact them as soon as the emergency has diminished. These types of emergencies usually include catastrophic medical events or an immediate need to protect your home or car from a storm or accident.

Special Circumstances
These are circumstances where there is adequate time to request an approval from your trustee, and they feel that it is necessary for you to incur this debt. The most common situations that are approved are the need to replace your vehicle, home improvements that are not emergencies but necessary, and appliance replacements. Your trustee will look into the reasons behind your request and consider:

  • If it necessary that this is done before you complete your chapter 13 bankruptcy plan
  • How much the new loan will be and what affect it will have on your chapter 13 plan and your ability to pay it
  • If the loan is secured or unsecured

Before you apply for any new type of debt you should always consider the way it will affect your ability to repay your bankruptcy plan. If you feel as though your reasons fall into one of the above categories, call your trustee and request a meeting with him or her.

Chapter 13 Open Bankruptcy Financing and Lenders

Getting approved for home repair loans or car loans in bankruptcy is not an easy task, and finding a lender can be equally daunting if you don’t know where to look. Lenders will not consider helping a person with an open bankruptcy on their credit report until there is an Authorization to Incur Additional Debt signed by the bankruptcy judge on your case. This is to protect themselves from getting in trouble with the law and putting themselves in a risky situation to lose a lot of money.

This can prove to be a bigger headache than you may think because not only will a lender not work with you until you have an order from the court, but they also may not agree to the interest rates or terms of the loan the judge has set for you. If this is the case, then your deal may fall through.

As We See It

If you have received your authorization you may be wondering how to even go about finding a lending company that won’t show you the door the second you mention the “B” word.  At Auto Credit Express, we can help you find a bad credit car dealer that will help you get your replacement vehicle quickly, and without hassle.

We specialize in helping people with trouble credit histories, including bankruptcy and repossession, find a dealer in their home town that can get them into a vehicle without feeling judged. If you’ve had an emergency and you’re in dire need of a replacement vehicle, or your current vehicle is on its last leg and your trustee supports your reasoning, fill out our secure online application today. You could be helping yourself to rebuilding your credit score before you’re discharged from bankruptcy.

Posted on October 14, 2013 by in Bankruptcy
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