How to Get a Personal Loan While in Chapter 13

If you’re currently in Chapter 13 bankruptcy, you may feel like obtaining a personal loan is an impossible feat. However, despite your current financial situation, there are options available to help you get the funding you need. Whether you’re looking to pay for unexpected expenses or make a big purchase, a personal loan can provide the financial support you’re seeking. In this blog, we’ll explore the ins and outs of getting a personal loan while in Chapter 13 bankruptcy. So if you’re ready to learn how to get a personal loan while in Chapter 13, keep reading!

Credit You Might Need During Chapter 13

People look forward to removing all debts at the end of Chapter 13 bankruptcy cases and not incurring additional debts. The Chapter 13 plan is long-lasting, but you may need to take out additional debt.

You can incur certain types of new debt under the Bankruptcy Code, but you must get permission from the court in most cases. Below is a list of the types of debt that you might need and how to obtain it. Learn more about Chapter 13 bankruptcy and the repayment plan.

A court may allow you to get new credit even if you are in Chapter 13 plans. These are some situations that could arise during your Chapter 13 plan and may require credit.

  • Get a new car. They don’t last forever. You might have to finance a brand-new car if yours is damaged. It can be difficult to get a loan from a traditional lender. However, there are lenders that specialize in financing Chapter 13 debtors. Be prepared to pay high-interest rates.
  • Medical expenses. This might not seem like you are racking up debt. However, if you visit the doctor and they provide you with services and then send you a bill, it is considered new credit under the Bankruptcy Code.
  • Taxes. A tax bill at the end is a new debt that you may have to pay over time. It’s important to note that if you don’t pay your tax bill on time, you may incur penalties and interest charges that can add to the amount you owe. 

Options Other Than Credit During Chapter 13

Sometimes, it is a good idea to look at other options before you take on more credit. Your goal during Chapter 13 should be to get back on stable financial footing, and adding more debt could potentially undermine that objective. That’s why it’s important to be careful and thoughtful when considering taking on additional credit during this time.

If Your Financial Need Is Temporary

Talk to a bankruptcy lawyer if you are having difficulty making ends meet. An attorney may be able to modify your monthly payment or arrange with the Chapter 13 trustee to delay your payments in case of temporary financial hardship. Due to the timeframe for completing the plan, many trustees won’t work with you in this way.

Long-Term Financial Changes

You might have to change your plan if your financial situation is worse because of losing your job or another reason. The court will need to approve the motion.

Keep in mind, however, that the court cannot reduce your payment towards unsecured nonpriority debt such as credit card balances or medical bills. It is impossible to reduce the amount you pay for secured debt such as mortgages or car loans, and priority debt.

Chapter 13: Obtaining New Credit

If you are unable to continue making payments under your plan, the court will allow you to take on new debt to support personal, family, or household purposes. The court will allow you to borrow the money if you can show the Chapter 13 trustee or the court that you have a need for the credit to keep your plan in place. The trustee and the court will likely approve a car loan if you require a reliable vehicle to commute to work in order to earn enough money to pay the Chapter 13 plan.

Most cases require the court’s approval before you can incur large debts.

How to Get Permission to Incur New Credit or Debt

There are many procedures that you need to follow in order to ask the court and trustee for permission to take on new debt. Talk to your Chapter 13 trustee, bankruptcy attorney, or bankruptcy court to learn the details. We have provided a guideline below on how to get a car loan.

  1. Request a sample financing statement from your dealer. It will include information about the car and the terms of the loan (e.g., the length of the loan, the interest rate, and monthly payments).
  2. The paperwork for the Chapter 13 trustee can be found on his or her website. The Chapter 13 trustee will assess your ability to pay back existing creditors and your need for new debt. Also, the Chapter 13 trustee is likely to object to you buying a luxury vehicle at the expense of your creditors.
  3. Send a request for permission to the court (the trustee may do this for your creditor) and the motion to creditors, the trustee, the U.S. Trustee, and any other interested parties. If the trustee refuses, you will be responsible for serving it yourself.
  4. A court hearing might be necessary. If nobody objects, the court may grant your motion without a hearing.
  5. You will need to provide a copy to your new lender if the court grants your motion. This will be required by Chapter 13-acquainted lenders before they approve the loan.

The process can take up to a whole month, so plan ahead.

If you are concerned that the process may take too much time, you can request an ex parte (expedited or emergency) basis.

Be aware: Bankruptcy judges may not approve of you taking on new debt. It is important to get permission before you take on the debt. Your case could be dismissed if you do not.

Consult with a Bankruptcy Attorney

Consulting with a bankruptcy attorney is a good idea if you’re considering obtaining a loan while in Chapter 13 bankruptcy. An experienced bankruptcy lawyer can provide valuable guidance and advice on your specific situation, helping you make informed decisions about your finances.

A local bankruptcy attorney will be familiar with the bankruptcy laws and procedures in your area and can advise you on whether your Chapter 13 plan can be modified to make it more affordable and manageable. They can also help you understand the impact that taking on additional debt may have on your bankruptcy case and provide you with information on the types of loans you may be eligible for.

Moreover, a bankruptcy lawyer can assist you in negotiating with creditors, helping you avoid potential pitfalls and navigate the legal and financial complexities of obtaining a loan during Chapter 13 bankruptcy. With their help, you can make an informed and strategic decision about your finances and take steps to improve your financial situation.

Schedule a FREE Consultation With Experienced Bankruptcy Lawyers

If you’re in the midst of Chapter 13 bankruptcy and need help navigating the financial complexities of obtaining a loan, Bruner Wright P.A. is here to help. Our experienced bankruptcy attorneys have a deep understanding of the bankruptcy laws and procedures in your area and can provide you with the guidance and support you need to make informed decisions about your finances.

Other Services We Offer:

Whether you need assistance with a loan modification or advice on the types of loans you may be eligible for, we’re here to help. Contact us today to schedule a consultation and take the first step towards financial stability.