Making Purchases on Credit During Bankruptcy
Obtaining a discharge is the primary purpose of filing for bankruptcy for most debtors. Sometimes unforeseen circumstances may arise after you have already filed the initial paperwork, creating the need to make a purchase on credit. It is important to be aware that you will need permission to incur substantial debts during bankruptcy. If you are thinking about making purchases on credit during this time, you should consult an Alabama bankruptcy lawyer at Grainger Legal Services.Making Purchases on Credit During Bankruptcy
The purpose of Chapter 13 bankruptcy is to obtain a discharge and restructure existing debts. However, a Chapter 13 plan lasts 3-5 years, and during that time, you may need to incur a new debt. Sometimes you may even need to incur a debt during Chapter 7 bankruptcy. In order to incur large debts during bankruptcy, you will need to ask the court's permission; however, you do not need the court's permission for very small new debts, however.
In some cases, particularly if you are self-employed, you may have new tax bills, rather than a refund during tax season, and this is also considered credit. However, you do not need to get permission to incur this type of debt so long as you are able to pay it as-you-go rather than accumulate it.
Some common examples of debt that people may need to incur during a Chapter 13 bankruptcy include replacing a car or air conditioning system. The court permits debtors to incur new debts for family, household, or personal reasons when it is necessary to allow the bankruptcy filer to continue to make plan payments. In order to continue to make plan payments, you need to be able to get to work, and to do that, you may need a new car. Certain types of lenders will provide a loan for a new car, usually with a high interest rate.
If your need to incur new credit is temporary, you should let your attorney know so that you can ask the trustee if there is a way to reduce your plan payments or postpone them on a temporary basis. However, if you anticipate that your financial hardship is permanent or long-term, you may need to restructure your plan. It is important to talk to your attorney about requesting a modification. You will have to demonstrate that you need the new credit in order to keep making payments under the plan.
In some emergency cases, a bankruptcy filer may incur new debt without receiving advance permission. You still will need to notify your attorney and explain that you did not have time to follow the procedures set forth for getting approval ahead of time, and that whoever extended you credit did not know that approval was necessary.Consult a Knowledgeable Bankruptcy Lawyer in Alabama
At Grainger Legal Services, a knowledgeable Alabama bankruptcy attorney can advise you about making purchases on credit during the Chapter 13 process. A lawyer can also file the necessary paperwork to obtain advance approval for incurring new debts, as appropriate. We have offices in Troy, Prattville, and Montgomery, from which we can serve debtors throughout south-central Alabama. Call or text us at (334) 260-0500, or contact us online to schedule a free consultation.