Motion to Incur New Debt
Motion to Incur New Debt
In Chapter 13, getting new debts is not allowed. The purpose of Chapter 13 is to get out of debt. The court wants you to stay that way. Still, sometimes the need for a new debt can arise in Chapter 13. For instance, sometimes there is the need for a new financed car. In such cases, the court must grant the ability to get this new debt through a what is called a “motion to incur new debt.”
Motions to Incur New Debt – It’s Only for New Secured Debts
Usually a motion to incur new debt is for secured debts only. Secured debts are loans where there is collateral. Buying a new car or house, for instance, are examples of new secured debts. These have to be approved by the court.
Unsecured debts such as credit cards are usually denied. You cannot generally file a motion to incur new debts for unsecured loans. Sometimes, however, people get new credit cards or loans during the Chapter 13 without the court’s permission. This may be possible, but it is not correct method. It’s also not a good idea because of the bankruptcy code is against it. Also, very small secured debts do not need any form of permission with the court. If the debt is under $2500, the court will not require permission.
What is Usually Approved by the Court?
Any new home or car loan must be both affordable and necessary. If either of these criteria are not met, the court will deny your Motion to Incur New Debt. First, the chapter 13 trustee will make sure that you can afford the new payments in the loan. This is usually done through a quick look at the filer’s budget. If the budget looks good, the trustee may also require an amendment to the Schedule J expenses part of the petition.
The new car or house being purchased must also be a necessary expense. For instance, sometimes when a third car is being sought, the trustee will deny the new loan. The Court and trustee may deem that a third car is not necessary even if you are buying it for a minor child. The trustee also will do an affordability analysis on any housing request. If continuing to rent looks more affordable and predictable, then the trustee may deny the new mortgage loan.
Remember, the trustees number one goal is to eliminate all of your debts. The trustee will not want you entering a new situation that could likely place you back into bankruptcy in the future. Even if a new house or car looks like a good option, the trustee is entitled to have a different opinion. Ultimately, it is the court and the trustee’s decision whether your Motion to Incur New Debt will be allowed.
New Debts in Chapter 13 Bankruptcy
Local Court Requirements – Motion to Incur New Debt
