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Taking Out a Loan While You Are in a Chapter 13 Bankruptcy Case

Most Chapter 13 cases will run the maximum 60 month term. The problem is, in 5 years, you may need to get a new car or repair your home while you are in the bankruptcy case. The court will permit you to incur new debt for personal, family, or household purposes if it is necessary for you to continue to make payments under your plan. The best example of this is if you need a reliable car to get to work so you can earn money to make payments to the Chapter 13 plan. As long as the car loan meets your specific trustee’s debt guidelines (these are usually published on their site) the court is likely to approve the loan.

Before you can incur debt however you need to obtain the court’s permission. The procedures you must follow to ask the trustee and court for permission to incur new debt vary, so check with your Chapter 13 trustee or attorney to find out the specific procedures required in your bankruptcy court.

In our district, the Northern District of Georgia, here is the process for obtaining a car loan while you are in a Chapter 13 bankruptcy.

1. Obtain the proposed financing statement containing the loan’s terms (the length of the loan, interest rate, and monthly payments) from your dealership and information about the car you intend to purchase.

2. Provide this information to your attorney so that a Motion to Incur Debt can be filed and a hearing scheduled.

3. Once the Motion is granted, an order is entered on the docket and you will provide this to the car lender to finalize your loan.

Remember that this process takes AT LEAST 45 days and sometimes longer so be patient!

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