On the day you file bankruptcy you provide the bankruptcy court with a snapshot of your finances. Debts that you owe on the day your bankruptcy petition is filed are called “pre-petition” debts. The bankruptcy court has jurisdiction over pre-petition debts, and these debts are administered during your bankruptcy case.
Debts that arise after your case is filed are called “post-petition” debts. There are three options for dealing with post-petition debts during your bankruptcy:
- do nothing
- include the debt in your Chapter 13 case, or
- convert your case to a Chapter 7 bankruptcy.
For the most part, post-petition debts are not part of your bankruptcy case, which means you won’t pay them through your plan and they are not eligible for discharge at the end of your case.
Although you are liable for debts you incur post-petition, bankruptcy’s automatic stay may delay the creditor’s ability to collect. For example, since your wages are part of your Chapter 13 bankruptcy estate, the creditor on a post-petition debt cannot attach your wages while your case is pending. Nor can the creditor take any property that is part of the bankruptcy estate.
Generally, the creditor on a post-petition debt cannot collect the debt until either the automatic stay is terminated or the creditor receives permission to collect from the bankruptcy court.
Include the Debt in Your Chapter 13 Case
You can include post-petition debts in a Chapter 13 case under special circumstances. First, you must obtain the consent of the bankruptcy trustee before you incur the new debt. Second, the post-petition creditor must consent to its inclusion in your Chapter 13 repayment plan. Finally, you must obtain court approval.
In Chapter 13 bankruptcy, you are supposed to get the approval of the trustee before using credit or incurring a debt. The trustee will approve a new consumer debt if that debt is necessary for the completion of your bankruptcy plan. An example of this is a car loan for a vehicle so you can get to work. Usually, the bankruptcy court will reject a request to include a post-petition debt in your bankruptcy if you fail to obtain the trustee’s approval prior to creating the debt.
However, courts recognize that it’s not always possible to obtain trustee approval for incurring new debt. For example, you may not be able to get prior approval for unexpected tax bills or medical expenses. The bankruptcy court will take the circumstances of the new debt into consideration and may approve a request to include the debt in the Chapter 13 repayment plan, even if you didn’t get prior trustee approval.
Along with the trustee’s consent, the post-petition creditor must consent to its inclusion in your bankruptcy plan. The creditor indicates its consent to the bankruptcy court by filing a proof of claim. This must be done by the creditor; you cannot file the proof of claim for the creditor.
There are several reasons why a creditor might consent to adding the debt to your existing Chapter 13 bankruptcy.
- An unsecured creditor may decide that it would like to get paid sooner. Since the automatic stay prevents the post-petition creditor from collecting from you during your bankruptcy case, an unsecured creditor may decide that receiving a little money now is better than waiting for your bankruptcy case to finish. Post-petition unsecured debts included in your bankruptcy are paid at the same rate as other unsecured debts.
- Priority creditors (for example, creditors on tax debts and child support claims) are paid ahead of other creditors, so priority creditors are likely to agree to have the debts paid through your bankruptcy case.
- Post-petition secured debts are paid at the contract rate during the bankruptcy, and therefore a post-petition secured creditor is likely to file a proof of claim.
On the other hand, a creditor may not consent to payment through your bankruptcy case if you propose to pay only a small percentage of its total claim in your Chapter 13 plan and discharge the rest at the end of your plan period. This creditor may prefer to wait and commence collection on its debt once your bankruptcy case is over.
Bankruptcy Court Approval
After both the bankruptcy trustee and the creditor have consented to including a post-petition debt in your bankruptcy case, obtaining approval from the bankruptcy court is usually only a formality. You must amend your repayment plan and add the debt. The amended plan states whether the new debt will receive payment, and modifies how your monthly payments are distributed.
Convert to a Chapter 7 Bankruptcy
Including post-petition debts in your Chapter 13 plan may not always be the best course of action. If you cannot afford to pay the debt, even through your plan (for example, say it’s a very large medical debt), then you may be better off converting your Chapter 13 case to a Chapter 7 case.
If you convert your Chapter 13 case to a Chapter 7 bankruptcy, the “new” case will include any debts you incurred after your original bankruptcy filing and before the date of conversion. These debts will dischargeable in your newly converted case (assuming they would otherwise be dischargeable). You don’t have to get creditor consent or trustee approval to include them in your bankruptcy.
For more information on converting your case, see When Can Chapter 13 Be Converted to Chapter 7?