Thursday, June 7, 2007

Getting a loan while in chapter 13 bankruptcy

I was recently asked by someone who is currently in a chapter 13 bankruptcy case 13 for 1 year, and who has 2 years remaining on her plan if it possible for her to get some type of loan. She stated she was "in a bind."

Well, it can be possible to acquire debt during a chapter 13 bankruptcy. However, one would need to bring a motion in bankruptcy court and explain why this loan is both necessary and reasonable. Therefore it is a tough standard to meet. She will have to show how she can afford it, when all of her disposable income is going to her chapter 13 plan. Basically, needs to show a raise, a second job, or reduced monthly expenses. The bigger hurdle is to show that it is necessary. The court's position is that they are trying to prevent debtors from getting right back in the same traps that may have brought them here....huge interest rates for unnecessary things!!

The court is most likely to grant permission to obtain additional credit if there is a need to finance a car when one has died or was totalled in an accident and there is no other means of transportation to and from work. The other most common reason is where the debtor is looking to refinance real estate for a better interest rate or to pay off the bankruptcy with the proceeds.

Getting a cash loan approved would be very difficult, and absent an extreme reason why it is both reasonable and necessary, the courts usually deny it. Always consult your attorney to best advise you on these types of issues!