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Chapter 13 Bankruptcy And Incurring New Debt

A chapter 13 bankruptcy is typically a 5-year commitment. This can seem daunting to many clients who have vehicles that are on their last legs. Many clients in this position find somewhere down the line, it is time to replace a vehicle and they ask if it is possible to secure financing for a new or newer vehicle, while in an active Chapter 13 bankruptcy. The same applies when a client is interested in purchasing a home while in bankruptcy.

The short answer is that it is possible to incur new debt for a home or vehicle purchase while in chapter 13 bankruptcy. However, there are many hurdles to overcome in the process of doing so. Any debtor who will incur more than $1,000 of new debt, will need to obtain approval from the court prior to making the purchase.

Gathering Details

Prior to approaching the court, the debtor will have to do their shopping first. This means gathering all of the details about the new purchase and the financing arrangement. For example, if a debtor were purchasing a new vehicle, the trustee would require the following information in writing:

  • What is the year, make, and model of the car?
  • What is the total amount to be financed and the actual value of the car?
  • What is the interest rate?
  • Does the total price include taxes and fees? If so, what is the breakdown of those fees?
  • What is the duration of the potential loan?

After this information is gathered, your bankruptcy attorney would then file a motion with a court requesting approval to incur this new debt and a hearing would be set. The court will be looking at the potential purchase and sales contract to determine if this purchase is reasonable, feasible, and would not jeopardize the success of the bankruptcy.

This process can take around 40 days to complete once the motion is filed. Because of this, it is very important to ensure your potential lender is aware of the process you are going through and will honor the deal once it is approved by the court and will not rescind the arrangement after a certain time period.

For more information about Chapter 13 bankruptcy contact your Yuba City bankruptcy attorney at (530) 797-4402.

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