Incurring a Debt During a Chapter 13

If you have filed Chapter 13, you should know that you cannot incur a debt without the bankruptcy court’s permission during the life of your bankruptcy. We understand that situations may arise where you may need to incur a debt. The most common situations that arise where a debt may need to be incurred are:

• refinancing your current home mortgage
• purchasing a home or car
• financing equipment needed for utilities (i.e., water hearing, air conditioner, etc.)

Filing a Motion to Incur Debt

When a motion to incur debt is filed with the bankruptcy court, in the Middle District of Alabama, the court will set a hearing on the motion to enable you to appear and explain the need for the debt and/or allow creditors or the trustee to object to such request.

It is important when the motion to incur debt is filed, that your income and expenses are updated with the court to show that you have the ability to afford the payment on the debt you are requesting to incur.  If your budget does not reflect that you can afford the new monthly payment, then the court will allow you to explain how you will intend to make the payment and keep your current chapter 13 payments going forward at the hearing.

In most chapter 13 cases, a motion to incur debt is rarely needed.  This motion should only be used for situations where the debt will help you reduce your current monthly expenses or replace something that is a necessity.

In the Middle District of Alabama, if you have a need that requires you to finance something while you are in chapter 13, you will need to contact your bankruptcy attorney immediately and provide the following:

• Proof of your income for the last two months
• A current list of your monthly expenses
• The amount and financing terms of the debt you wish to incur, along with any supporting documentation of the collateral that will be used.

Do not expect a quick response since getting an Order on the Motion to Incur can take up to 30 days.

If you are currently paying back unsecured creditors 100% through your Chapter 13 plan, the trustee in the Middle District of Alabama may be able to approve your request to incur a debt without you having to file a motion with the bankruptcy court.  You would simply complete the Post-Petition Loan Request Form on the trustee’s website and provide the documents requested to the trustee.  The trustee will normally respond in about three days to your request.

 

If you are overwhelmed by your debt and would like to set up a free consultation to discuss your current finances, contact a Bond & Botes office nearest you today.