Adding Debt to a Chapter 13 and Staying Out of Hot Water

Adding Debt to a Chapter 13 Bankruptcy and Staying Out of Hot Water

As a general rule, you cannot add any debt that has been incurred after the filing of a Chapter 13 to a case.  A person who goes out and buys a car while being in an active bankruptcy case is going to get into some serious hot water.  Taking out loans from local finance companies while being in an active Chapter 13 bankruptcy is strictly prohibited.  Getting advances on your future tax refund is also prohibited while your case is active.

However, incurring some types of debt cannot be helped.  For example, you must go to the doctor.  No Chapter 13 debtor is going to get into trouble with a bankruptcy court for receiving necessary medical care.

What can a debtor do who gets sued while they are in an active Chapter 13 bankruptcy?  Technically, a post-petition judgement cannot be discharged in a Chapter 13 bankruptcy.

Converting to Chapter 7 Might Be An Option to get you out of hot water.

When there is a change in a person’s economic circumstances, converting to Chapter 7 might be a good option for a person who needs to add debt that was incurred without any bad faith after the Chapter 13 was filed.  Many bankruptcy attorneys do not know that you can do this.  I recently argued with an experienced bankruptcy attorney who represents creditors.  This bankruptcy attorney was not aware of section 348(d) of the Bankruptcy Code.

The section states,

A claim against the estate or the debtor that arises after the order for relief but before conversion in a case that is converted under section 1112, 1208, or 1307 of this title, other than a claim specified section 503(b) of this title, shall be treated for all purposes as if such claim has arisen immediately before the date of the filing of the petition.

In some bankruptcy cases, it is impossible to avoid the scalding hot water of post-petition debt.  In others, Section 348(d) just might save the day.  Talk with your bankruptcy attorney and explore your options.

Other posts you might be interested in reading.

1.  What is Chapter 13?

2. What is Chapter 7?

3. How much does it cost to file?

4.  How do I stop a garnishment?

5.  How do I stop a foreclosure?

6.  Can I convert my chapter 13 to a 7?