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Can I Incur New Debt After Filing Bankruptcy?

by Adam Mack, J.D.

Hillary Stirling, research assistant

Sometimes my clients end up needing to incur new debt after filing bankruptcy. Life happens: cars break down, medical emergencies arise, or furnaces go out. Fortunately for those who have declared bankruptcy, it is possible to incur new debt after filing, even if you’re still making Chapter 13 Plan payments. For that debt to be approved by the Court, two criteria need to be met.

Consumer Debt
The first criteria is that the debt incurred must be consumer debt. This is opposed to business debt. Examples of consumer debt include credit cards, student loans, and taxes. (Business tax debts are not consumer debts.)

The second criteria is that the debt must be “necessary for the debtor’s performance under the plan.” That’s much less restrictive than it sounds. For example, if you need a vehicle to get to work and your car gets totaled in an accident, you can argue that a replacement vehicle is necessary under the plan because without the car, you can’t work and if you can’t work, you can’t fulfill the requirements of the plan. Another example is if you need medical care and request to open a care credit account. Again, if you’re in poor health, you can’t work, and if you can’t work you can’t complete the plan.

The big caveat is you can’t be taking out a large enough loan that it will jeopardize the plan, making the approval of such loans highly fact-specific. It’s not a guaranteed thing. You’ll have to recalculate the entire budget – something you’ll want your attorney’s help to do – before you can request the new credit.

The Most Important Part
Even though there are some temporary restrictions on incurring new debt after filing a chapter 13 bankruptcy, the courts are careful to not leave a debtor hobbled when it comes to new credit. After all, one of the two major purposes of bankruptcy is to give you a fresh start. Contact us today if you’d like to learn more.


These articles are for general informational use and do not constitute legal advice. Since laws change over time, it’s possible some articles are out of date and for that reason, we make no representation that the articles are fully accurate. For actual, up-to-date legal advice (including a free consultation), please contact us!