Getting Permission to Incur New Debt
In Chapter 13, you are not permitted to borrow or use any other form of credit unless you have written permission from the Bankruptcy Judge or the Chapter 13 Trustee. The only exception for borrowing without prior approval is in the case of an emergency for the protection and preservation of life, health or property. This prohibition against borrowing applies to any member of your family that is supported by you, whether they are under the jurisdiction of the Bankruptcy Court or not, as long as you may be held responsible for the debt or any of your property is collateral for the debt. Here are some examples of borrowing that are prohibited without prior Bankruptcy Court approval (this list is not exclusive):
• Leasing a car, appliance, television, furniture, etc.
• Financing or refinancing a house
• Incurring student loans for yourself or others
• Post-dating a check to a payday loan company
• Borrowing against your retirement account
• Obtaining a loan or signing a note, even as a co-signor or guarantor
• Pledging your property as collateral for a debt
• Entering into a “rent to own” contract
• Buying anything “over time”
• Advances on your salary
• “Running up a bill”
If you need a credit card in your name for work purposes, then discuss this matter with your lawyer so that approval can be sought from the Bankruptcy Judge.
Obtaining credit without permission of the Bankruptcy Judge or Chapter 13 Trustee can have serious consequences. Your case may be dismissed, and your ability to obtain future relief from your creditors may be severely limited. Any credit purchase you make without Court approval could be prohibited, what was purchased might have to be returned and you very likely would lose any payment you made.
Requests to borrow may be made to the Chapter 13 Trustee using a form that you can obtain from your attorney. All requests must be signed by your attorney, state the name of the lender, the amount of the loan, the terms of repayment (including monthly payment amount and interest rate), the purpose of the loan, and the impact of the borrowing on your ability to continue to fund your Chapter 13 plan. THE CHAPTER 13 TRUSTEE IS NOT A FINANCING RESOURCE. THE TRUSTEE DOES NOT LEND MONEY. If the Chapter 13 Trustee does not approve the request, then you may seek permission from the Bankruptcy Judge with a formal motion, which must be filed by your attorney.