When people file for Chapter 13 bankruptcy, many consider their lives on hold for the five years that they are repaying their Creditors. While there is definitely a freeze on certain aspects of the debtor’s life, it’s more of a light frost. Real life goes on and circumstances arise that will affect the debtor and possibly his or her Chapter 13 Repayment Plan. The Bankruptcy Code anticipated real life and debtors have options on how to deal with real life while in Chapter 13.
A lot of things can happen during the 5 year Chapter 13 Repayment schedule. For example, often debtors find themselves in need of a new car. The Bankruptcy Code allows debtors to incur new debt in bankruptcy for the purpose of getting a new car. The requirement to obtain this new loan is simple b the debtors must get Court approval. The debtors will need to obtain all the financial information about the new loan amount, monthly repayment, interest rate, down payment and will propose that loan to the Court and ask for permission to obtain the loan. The Trustee and all Creditors have 21 days to object to the new loan. If no one objects, the debtors are free to get the new car loan and enjoy their new car.
Another “real life” event that debtors encounter is their desire to refinance their home loan. With interest rates dropping by the day, many debtors will be able to refinance their mortgage, even if they are repaying mortgage arrears through the Bankruptcy Plan. If the debtors find a lender willing to refinance the mortgage, they must file a motion with the Court asking for permission to refinance. If there is no objection, the mortgage will be refinanced and the debtors can find themselves in a much better situation.
The Courts and Chapter 13 Trustee are sensitive to the real life issues debtors’ face. If debtors are moving forward responsibly with their cases, and in other aspects of their financial lives, obtain permission to incur credit during a case can be a relatively simply matter.