Can I Open New Credit Accounts While I’m in a Chapter 13?

The purpose of a Chapter 13 is to allow you to repay all or most of your debts while under the protection of the bankruptcy court. As part of the process, you agree to pay to the court all of your disposable income. This is accomplished by making fixed payments according to a predetermined schedule, and possibly also sending in things such as tax return refunds or other types of unexpected cash.

During the course of your bankruptcy, the court generally requires that you do not take on additional debt. That includes loans or opening new credit card accounts. Any attempt on your part to do so could place the bankruptcy in jeopardy and lead to a dismissal. That’s the last thing you want, since your creditors would once again be free to use any legal means to collect the money you owe.

That being said, there are exceptions where, the trustee may be willing to grant an exception and allow you to take on additional debt for a specific purpose. Here are some examples of when the court may allow you to take on new debt.

Replacing Your Vehicle

Chapter 13 bankruptcies last anywhere from three to five years. During that time, your vehicle may need replacing. Since you rely on that vehicle to get to and from work, the trustee may be willing to make an exception and allow you to obtain a loan for a replacement vehicle.

Keep in mind that this doesn’t mean you can go out any buy any car or truck that you want. The focus is on obtaining something that’s reliable and will help you get through the rest of your bankruptcy period. Find something that’s affordable, in decent shape, and will allow you to continue making your usual Chapter 13 payments after a short grace period.

Covering Medical Expenses

When you first petitioned for a Chapter 13 action, you included information about your typical medical expenses. That included what you normally pay out of pocket for doctor visits, medication, and other basic medical needs. Unfortunately, you’ve just been to the emergency room and will need some sort of surgery. Your health insurance covers the bulk of the cost, but there will be co-pays and deductibles that you were not expecting.

The bankruptcy trustee is likely to consider this an emergency situation. In this scenario, you would notify the court as quickly as possible. The trustee is likely to view this as a legitimate expense and work with you to structure some sort of temporary plan that allows time for the procedure and for you to recover.

Paying Taxes

It’s tax season and you’ve just finished preparing your tax returns. Unfortunately, you will be paying this year. The problem is that coming up with the money to make those tax payments on time is going to be next to impossible.

The trustee may be willing to work with you. By scheduling a meeting and going over the specifics of the situation, you could be granted a little time to delay your next payment or two, or possibly make reduced payments for a defined period of time. You would then make your tax payments and once again start sending in payments to the court.

Making Essential Home Repairs

The time you spend in a Chapter 13 is not ideal for making home improvements. Essential home repairs are another matter. When something about the house must be repaired in order to provide adequate protection from the elements, the trustee is likely to consider some sort of short-term change in your bankruptcy plan. As with replacing the car, you do want to gather information and discuss the matter with the trustee before proceeding with any repairs.

Keep in mind that, outside of an unavoidable emergency, you should never take on new debt and then report it to the trustee. If something has happened that has created a real need, work with the trustee to come up with a solution. If you can demonstrate the ability to take care of the debt quickly and create only a minimal impact on your case, most trustees will be willing to work with you.