Can You Get New Debts or Cars During Chapter 13?

New Debts in Chapter 13 Bankruptcy

You are not allowed to get new debts, cars, or mortgages usually during your Chapter 13 case.  This is because Chapter 13 is a plan to get you out of debt. The Chapter 13 Trustee does not want you to get into new debts.  Getting new debts will make it impossible for you to be debt-free at the end of your case. 

Credit Cards and Loans are Not Allowed

You are not allowed to get any type of credit card or loan during Chapter 13.  In fact, the Trustee does not want you to get any new type of debt at all. The bankruptcy court does understand, however, that sometimes this is impossible.  In some circumstances, some debtors will find themselves in new debts such as medical debt. Still, this is not the design or purpose of Chapter 13. Generally, the court is strongly against all new forms of debt.    


New Car Loans are Usually Not Allowed

New car loans are usually not allowed during Chapter 13.   If your car still works, the trustee usually wants you to pay off your existing car loan through the plan if at all possible.   If your car goes bad during Chapter 13, the trustee always prefers that you get a paid-in-full car to stay out of new debts.

In rare cases, the Chapter 13 trustee may allow you to get a new financed car during your Chapter 13 case.  They will only allow you to do this if you are facing a hardship and the car loan is in your best interest. Remember, the Chapter 13 system is generally very against you getting new debts!    

In such very rare cases, this new car loan will need to be approved by the Trustee.  Your new payment will generally need to be under $300 per month, preferably much lower.  It is rare that the trustee will allow much more than this amount per month. Also, the car dealer will need to send in an approval sheet to the Chapter 13 trustee before the loan is finalized.  It is also very likely that amendments to schedules, modifications to your plan, and approval motions may also be required. This is not an automatic or instant process by any means! Also, the Chapter 13 Trustee is generally against such new car loans unless it is your only choice.  Remember, Chapter 13 is designed to get you out of debt and not into more of it!          

New House Loans or Mortgages are Also Usually Not Allowed

In rare cases, the trustee may also allow you to get a new mortgage during Chapter 13.   The analysis and procedure are somewhat similar to the automobile loan one above. It usually takes longer, however, and the approval guidelines are more strict. Essentially, you will have to prove that you have a strong need for a new mortgage loan. You would also have to prove that the new mortgage is in your best interest.

The trustee will generally deny the new home loan, especially if it increases your current housing payment.   The Chapter 13 Trustee will object to any home that increases your house payment beyond a minimal amount because they will not believe the new housing choice to be in your best interest.  You will need to get a good faith estimate that shows all of the terms of the new mortgage loan from your mortgage broker. Also, you may need to wait for 30-60 days for the full court-approval process.

The Trustee is generally skeptical that incurring any new form of debt is actually in your best interest.  Therefore, new mortgages and car loans should only be pursued if they are absolutely necessary and can be achieved in a way that requires low affordable monthly payments.  The Trustee will automatically deny any request unless it fits within very narrow, limited guidelines.

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