If you've filed a Chapter 13 case, you can expect to make payments and be under the court's protection for three to five years. Most debtors find it almost impossible to avoid new debt, known as "post-petition" debt while paying into a Chapter 13 plan. Knowing how to handle this debt when it arises can impact whether your payment plan succeeds or fails.
The day you file bankruptcy you provide the court with a snapshot of your current finances. But our financial situation can change, and the court needs a way to identify which finances the judge controls ("jurisdiction"). That guidepost is the petition date—the day you filed your case. Obligations arising after the petition date are "post-petition" debts.
Once you've learned what will happen to your Chapter 13 post-petition debt, check out the resources provided at the end of the article. You'll find links to applicable bankruptcy forms and additional articles we think you'll enjoy.
Debts you owe on the day you file your bankruptcy petition are called "pre-petition" debts. The bankruptcy court has jurisdiction over all the debts that existed on the day you filed your case.
What about those debts that arise after you file your petition? Debts that arise after you file your case are called "post-petition" debts. The court has limited jurisdiction over debts you incur after the petition date. The bankruptcy court can direct how these debts will be treated, depending on how you wish to handle them.
Consider these three options for dealing with post-petition debts during your 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 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.
You can include post-petition debts in a Chapter 13 case under special circumstances. Often, you'll have a choice to include the debt in your plan payment or to pay the debt outside the plan. Either way, the procedure for adding a new debt has three steps.
Let's look at each of these steps in a bit more detail.
During your Chapter 13 bankruptcy, you are supposed to get the trustee's approval before using credit or incurring debt. The trustee will approve a new consumer debt if that debt is necessary for the completion of your bankruptcy plan. An example is a car loan for a vehicle so you can get to work.
However, courts recognize that it's not always possible to obtain trustee approval for incurring new debt. For example, you might 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.
For debts you can plan for, like car loans or appliance purchases, many courts and trustees have guidelines for debtors searching for the best deal. The guidelines take into account current market rates for value and interest rates. Guidelines usually allow for at least a modest vehicle likely to last through the remainder of the plan.
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. The creditor must file the proof of claim; you can't file the proof of claim for the creditor.
On the other hand, a creditor might 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 might prefer to wait and commence collection on its debt once your bankruptcy case is over.
To obtain approval from the bankruptcy court, you should be prepared to show the court you can afford the new payment. Explain why you need the item, why the purchase is reasonable, and how you'll pay the debt, If the court grants your request, you will amend your repayment plan and add the debt. The amended plan states whether the new debt will receive payment through the plan or whether you will pay the debt directly, and it modifies how your monthly payments are distributed.
Read more about changing your plan payment at Modifying Your Plan Payment.
Including post-petition debts in your Chapter 13 plan might not always be the best course of action. If you cannot afford to pay the debt, even though your plan (for example, say it's a very large medical debt), you might be better off converting your Chapter 13 case to a Chapter 7 case or dismissing the Chapter 13 case altogether.
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 conversion date. These debts will be discharged in your newly converted case (assuming they would otherwise be dischargeable). You don't have to get creditor consent or trustee approval to convert to Chapter 7.
If you dismiss your Chapter 13 case, you can probably refile the case soon after. You will include all the debts you listed in the original filing plus any that you incurred since the filing. Be careful, though. Depending on how many Chapter 13 cases you've filed, the automatic stay might not be automatic. You might have to justify to the court why you need it before the court will impose it.
Bankruptcy is essentially a qualification process. The laws provide instructions for completing a 50- to 60-page bankruptcy petition, and because the rules apply to every case, you can't skip a step. We want to help.
Below is the bankruptcy form for this topic and other resources we think you'll enjoy. For more easy-to-understand articles, go to TheBankruptcySite.
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We wholeheartedly encourage research and learning, but online articles can't address all bankruptcy issues or the facts of your case. The best way to protect your assets in bankruptcy is by hiring a local bankruptcy lawyer.