Incurring New Debt After Filing For Chapter 13 Bankruptcy
You have finally made the difficult decision to file for Chapter 13 bankruptcy. It is never an easy decision, but for those who want a fresh start, bankruptcy can help ensure a path towards financial freedom. However, in many cases, after filing for bankruptcy, some catastrophic event happens. Life is filled with unexpected occurrences, and those do not stop simply because someone filed for bankruptcy. If you filed for bankruptcy, and then had a medical emergency, had your furnace go out, or your car breaks down, you may wonder what your legal rights are to obtain and incur new debt.
Incurring New Debt
The short answer is that a person that files for bankruptcy does have a legal right under certain circumstances to incur new debt. If you filed for Chapter 13 bankruptcy, your debts were reorganized in such a way that you were able to begin to pay creditors back the amounts they were due over a longer period of time, typically 3 to 5 years. Even if you are still making Chapter 13 repayments, you may be able to incur new debt if that debt is approved by the court.
Debt Approved by the Court
In order for any consumer to take on and incur new debt after filing for Chapter 13 bankruptcy and still repaying creditors, the debt must be approved by the bankruptcy court and must meet two criteria as follows:
- Consumer Debt. The debt incurred following a Chapter 13 bankruptcy must be a consumer debt. This means that it can be credit cards, an automobile loan, a loan for appliances, student loans, etc. However, business debt is not considered consumer debt and will not be allowed by the court following the establishment of a Chapter 13 repayment plan.
- Necessity. The debt must be a necessity. In fact, the definition is that the debt must be “necessary for the debtor’s performance under the plan.” This sounds quite restrictive, however, in most cases, a debtor will be able to argue that debt is a necessity. Medical debts, a new furnace, a car to get to and from work, are all necessities under these criteria. Essentially, if you are too sick to go to work because you can not pay your medical bills, develop a medical condition because you do not have a heater, or do not have a car to get to and from work, then you will be unable to pay the remaining amounts owed to creditors under your established chapter 13 repayment plan.
As with most things under the law, whether or not the court will approve incurring new debt will rest on the facts and circumstances of your bankruptcy and the actual debt itself. Remember that the entire point of bankruptcy is to give a person a financial fresh start, and preventing them from incurring necessary debt would hinder their ability to do just that.
Let Us Help You Today
If you feel you may need to incur new debt after filing for Chapter 13 bankruptcy, contact our West Palm Beach bankruptcy attorneys at Kelley Fulton Kaplan & Eller at 561-264-6850 for a consultation, and to help you understand your legal rights.