Add New Debt While in Chapter 13

We are currently in Chapter 13 but in the last 5 years we incurred more debt.

My wife and I are currently in Chapter 13 until March 09. We own a home and the payment is into the monthly payment to the court. Through the last 5 years however, we've accumulated over $22,000 in debt from various credit and store cards. We're in a catch-22. Make the card payments and we fall behind on utilities and the payment to the court. Make the court and utilities payments and we cant make the card payments. We have about $30,000 in equity in our house, but we cant touch that because of the Chapter 13, can we?

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Bill's Answer
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Updated: Sep 18, 2014

Chapter 13 Bankruptcy
Highlights

  • Do not take on new new while in a Chapter 13 plan.
  • Consult with your trustee before changing your financial situation.

Consult with your bankruptcy attorney as soon as possible to advise him of this situation and determine what steps you can take to resolve the difficulties you are facing. You created a serious problem that may not be easy to fix; while in a Chapter 13 bankruptcy plan, you are prohibited from incurring new debt without receiving prior approval from the bankruptcy court or trustee. If you did not obtain court authorization before obtaining and using these credit cards, the bankruptcy judge would be well within his rights to dismiss your case. If the judge dismisses your case, you will not receive the discharge you have been working toward for the past almost 5 years, and all of that work and money could have been spent largely for naught.

As you can see, this misstep could create a very serious problem and could be detrimental to your future financial plans, so it is imperative that you contact your attorney to fully explain the situation and obtain his advice on how to best proceed. The federal bankruptcy code provides bankruptcy judges a fair amount of discretion in how they conduct their cases; while one judge may be strict and automatically throw out a case if a debtor violates any court order, another judgment may be much more lenient and allow potential violations to go unpunished. Hopefully, your attorney has enough experience with the judge assigned to your case to know what action the judge is likely to take if he finds out that you have incurred debt without court approval. Based on his experience, he may advise you to do whatever necessary to continue paying both your bankruptcy case and your new debts in hope that the indiscretion does not come to the court’s or trustee’s attention. On the other hand, he may advise you to notify the court of the debt now rather than risking the court uncovering the debt on its own and imposing a harsher penalty. The bottom line is that you need to consult with you attorney to try to find a way to mitigate the potential harm caused by your incurring this debt.

If the bankruptcy judge does find out about the newly incurred debts and dismisses your case as a result, you may be left owing any balances remaining on the debts which you had included in your Chapter 13 filing. Because of new time limits placed on filing a new bankruptcy petition, you may not be eligible to re-file for at least several months, if not longer, depending on the chapter under which you want to file (Chapter 7 or Chapter 13). Again, discuss this with your attorney so that you can be prepared in case the court does throw out your current case. To learn more about bankruptcy, visit the Bills.com bankruptcy resources page.

Assuming the judge allows you to continue your current Chapter 13 plan and grants you a discharge in March, 2009, you will still have the $22,000 in newly acquired debt to resolve and will be severely limited in your ability to receive another bankruptcy discharge for 6 years, if not longer. Therefore, you may need to consider alternative options to address this debt, such as credit counseling or debt negotiation programs. If you are interested in reading more about the various non-bankruptcy debt relief options available to consumers struggling with their finances, I encourage you to visit the Bills.com Debt Help page.

Once again, consult with your attorney as soon as possible regarding the potential consequences of this new debt you incurred and what steps you can take to mitigate the potential damage. I wish you the best of luck in resolving this situation, and hope that the information I have provided helps you Find. Learn. Save.

Best,

Bill

Bills.com

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27 Comments

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  • LF
    Jan, 2012
    l
    I am in chapter 13 right now and was struggling to find full time work, so I started work as a 1099 contractor. I have not made any tax payments and will expect to owe this year when I file, will this hurt my chapter 13 filing?
    0 Votes

    • BA
      Jan, 2012
      Bill
      Your question is best directed to your (or a) bankruptcy attorney. I can't give you legal advice, but will share my opinion.

      If the IRS contacts the court with a desire to "blow up" your bankruptcy, it could jeopardize your Chapter 13. It is unlikely that the IRS will figure out right away that you did not pay. Of course, when you file they will figure it out and even if you don't file, they will do so after some time. If you file late, you will subject yourself to a late-filing penalty, so you want to file by the April deadline. Ideally, you will save up the money by April to pay the IRS in full. If that is not feasible, speak with your bankruptcy attorney to see if you can add the taxes to your bankruptcy. Make sure to start setting aside money for your taxes and filing quarterly estimated tax forms, to avoid having the same problem next year.
      0 Votes

  • RR
    Dec, 2010
    Raven
    We are currently in a Chap 13 Bk and I was "busted" for a DUI. If I am convicted, I could pay a fine of up to $2000 and and Ignition Interlock for installation costs plus approx. $175/mo for a year, plus SR22 insurance for a year, plus up to a $2000 fine. The Ignition Interlock license costs $100 plus a $10 fee per month....does this need to go before the trustee? I have a paper saying that before we incur any debts, they have to approved by the trustee. ( Trying to find a way to get this dismissed...can you blame me??) Any help would be appreciated...I am in WA state.....Thanks
    0 Votes

    • 35x35
      Dec, 2010
      Do you have a bankruptcy attorney or are you handling your bankruptcy can on your own? If you have an attorney, speak with him or her. If not, you may want to speak to the court clerk, to see if you can get some guidance. My opinion is that you should speak to the court about your new financial obligations. I think it is possible that the court may adjust your payment plan, if you can show that there is no other way for you to afford the new obligations.
      0 Votes

  • TK
    Mar, 2010
    Teddy
    Most doctors want to spend there time healing their patients, not suing them - especially over $200. Besides, it would cost the doctor more than that to take you to court. (There's some good advice on how to deal with medical debt at http://www.bills.com/dealing-with-medical-bills-collections/.) Also, think about stopping your payday loan habit. If your taking a payday loan at least once a month, you're losing far more than $200 due to the outrageous fees and interest rates payday lenders charge. At the very least, read the article at http://www.bills.com/help-with-payday-loans/ before taking your payday loan. As far as your concern about the cost of future medical visits, you should know that some hospitals and other non-profit medical facilities receive funds from the federal government so they can offer free or low-cost services to those who are unable to pay. Teaching hospitals may also provide such services. Additionally, the U.S. Department of Health and Human Services provides a list of hospitals and health-care facilities that participate in the Hill-Burton Free or Reduced Cost program. For more information visit http://www.hrsa.gov/hillburton/default.htm ; for a complete list of participating facilities visit http://www.hrsa.gov/hillburton/hillburtonfacilities.htm. Help may also be available though church, civic, social, and fraternal groups in the community, as well as Salvation Army, Catholic Social Services, the United Way, Jewish Social Services, and others that can be found in the yellow pages. This is a difficult situation, but you are not alone in facing these hurdles, so don’t be afraid to reach out these and other reputable organizations. Unfortunately, this is the only country in the devolved world that does not provide universal health-care to all it's citizens, which means millions of people have either no insurance or have insurance with deductibles so high that they might as well not have insurance. Best of luck to you!
    0 Votes

  • 35x35
    Mar, 2010
    Tammy
    I'm currently in Chapter 13 since September 2009. In November 2009 and December 2009, my daughter and I had to go to the doctor. Between the 2 of us, we now have a bill of $200 at our doctor's office. We have not made any payments yet. I'm not trying to skip out on my bills but I simply don't have extra money to pay them. I know $200 doesn't seem like much right now but every time we have to go to the doctor we're going to have new debt added to this amount. I have insurance but there's a $2200 deductible and then it's 80/20. If the doctor's office chooses to, can they take me to court to garnish my wages? I have absolutely $0.00 left each month, I get a "payday loan" at least once a month as it is.
    0 Votes

  • BA
    Feb, 2010
    Bill
    Your bankruptcy attorney will have all relevant information available to him or her to advise you regarding your tax bill. Accordingly, I will not offer an observation, other than you would be wise to keep your attorney abreast of your financial situation.
    0 Votes