Can I obtain a new loan while in bankruptcy?

Often individuals in Chapter 13 Bankruptcy ask if they can take on new debt during the years they are under a Plan of Reorganization. Either the car lease is up or a mortgage modification would help improve the cash flow. You can incur new debt in Chapter 13 but you have to ask nicely first and obtain permission from the Court.

The Bankruptcy Code requires Court approval for a new debt obligation. This means that your bankruptcy counsel must file a request with the court detailing the reasons for the new debt and asking that the new financing be approved.

Do not obtain new credit or incur new debt without telling your bankruptcy lawyer. You do not have the authority to do so during the pendency if your Chapter 13 case. Telling your attorney after the fact will no fix the problem and your case maybe dismissed or you may be denied your discharge. These are results you do not want after you have made monthly payments to creditors.

It is also important that the monthly budget filed in your bankruptcy case supports the new debt payment either because it replaces old debt or reduces expenses. If you cannot support the payment in your budget, the new debt will no be approved.

You should not rely on the finance department of a car dealer or a mortgage broker when they talk to you about bankruptcy requirements. THey do not understand bankruptcy procedure. Often a client will tell me that the finance department simply wants a letter from the bankruptcy attorney stating that is ok to incur the debt. Bankruptcy counsel has no authority to approve the financing.

If you want to obtain new credit or incur new debt after a Chapter 13 filing and your budget supports the payment, talk to you bankruptcy lawyer and ask the Court for approval to avoid serious trouble.