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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  • 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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  • 35x35
    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

    • 35x35
      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

  • 35x35
    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

  • 35x35
    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

  • 35x35
    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

  • 35x35
    Feb, 2010
    Angie
    We are currently in a Chapter 13 bankruptcy and we will owe the IRS a good sum of money what do I need to do if we can't pay of all it my husband's hours have been cut alot
    3 Votes

  • 35x35
    Jan, 2010
    Bill
    When a person files bankruptcy, an automatic "stay" protects the person from garnishment or other collection activities. No creditor including the IRS, is allowed to violate the stay.
    0 Votes

  • 35x35
    Jan, 2010
    Linda
    Can the IRS garnish wages if a person is currently in a chapter 13?
    0 Votes

  • 35x35
    Dec, 2008
    Bill
    Before the judge dismisses it, you will get a show cause notice wherein you will get an opportunity to present your side of the story. All the best.
    0 Votes

  • 35x35
    Dec, 2008
    John
    one more question and that is it, I promise. if I get a motion to dismiss, whil I be given the opportunity to go to court and explain,or will it be dismissed without any warning.then all of a sudden all my creditors start calling me? Thanks for all of your help. I learned a valuable lesson.
    0 Votes

  • 35x35
    Dec, 2008
    Bill
    John, there is nothing you can do to reverse the fact that you were using those credit cards all this while. All you can do is wait and see what happens once you finish all the payments for your Chapter 13 filing. If the fact comes up at that point, you will just have to deal with it then, and tell the bankruptcy court as to what your intentions were when you took out the credit cards. You should have been told by your bankruptcy attorney that you cannot incur new debts while in a Chapter 13, it defeats the whole purpose of filing for one. Remember that you filed the bankruptcy to get rid of the debt in the first place. You should have waited till you made all the payments to the bankruptcy before you opened any lines of credit. At this point if you have any outstanding balance, pay it off and do not transact on the cards.
    0 Votes

  • 35x35
    Dec, 2008
    John
    I took your advice, went to my Attorneys Office , and he told me he cant do anything for me, and was very mean, and said he is supposed to diclose the info I told him, and said he wouldnt. do I need to worry that he will?
    0 Votes

  • 35x35
    Dec, 2008
    Bill
    You need to speak to your bankruptcy attorney and have him include this debt in the bankruptcy filing as well. Be assured that no one can garnish your wages without a court ordered judgment.
    0 Votes

  • 35x35
    Dec, 2008
    Don
    My wife incurred a 700 dollar medical bill for surgery. We were turned over to collections by the doctor becuase we were unable to pay the amount they wanted per month. They are now attempting to garnish us but we are also under a chapter 13 making payments. Can we be garnished for this medical bill while we are also being garnished for bankruptcy?
    2 Votes

  • 35x35
    Dec, 2008
    Bill
    sorry, John but do to the volume of requests we get and how busy we are, we are going to have to point you to an attorney (a new attorney who respects you) and wish you the best of luck.
    0 Votes

  • 35x35
    Dec, 2008
    John
    what should i do, since my attorney seems like they do not care. should i pay it off? or is it too late? the paralegal said to me, my trustee has a way of finding out? I wonder why my trustee hasnt fount out 2 years ago when i first started using my cards, just to use them and pay them off to build my credit? Im scared, all I wanted to do was to build credit. this time I had to pay my rent or get evicted. other than that i stopped using my cards. I have been able to manage my money until now, i am in commisioned sales, and i had a bad month, but now i have a great month going and i will be ahead next month. and i dont want to waste all the hard work of paying monthly to get this situation off my back. I made the mistake of the bankruptcy thing, when I became unemployed and lost my mom. I wanted to do a chapter 7 and be done with it, but my attorney advised me not to. I hate to have built up the credit i have build up being responsible. and have to convert to a chapter 7 at this point. I do not want to ruin the good credit I have worked so hard for. should I just let it go and deal with it? thanksd for your advise, I wish I can talk with you one on one, and not do the blog thing, I need honest advise, i want to do the right thing, when I told the one paralegal about the situation, and she was rude, i asked her if I should tell the trustee, and she said NO! they will dismiss my case, I just want to do the right thing. I have change since my chapter 13, and want to do what is right. and deal with the consiquenses, if i have to, what do I really need to do at this point? should I ssek another attorney and be proactive, or am i worring too much?
    0 Votes

  • 35x35
    Dec, 2008
    Bill
    Sorry to hear that you are not being treated professionally. I suspect that they are very busy, with all of the consumer debt driven bankruptcies out there. Good luck and hang in there john.
    0 Votes

    • 35x35
      May, 2011
      glory
      how about he he paid it off the credit card is he still in trouble to the trusty?
      0 Votes

    • 35x35
      May, 2011
      Bill
      Do not surprise bankruptcy trustees. Pay the bills the trustee expects you to pay. Do not incur obligations (like buying a car, house, motorcycle, or arrange an expensive vacation) without getting approval from your Chapter 13 trustee. Do not make a mortgage modification without informing your trustee in advance. It does not matter if you pay for one of the things I mentioned here with cash, a credit card, check, or IOU — keep the trustee informed.
      0 Votes

  • 35x35
    Dec, 2008
    Bill
    It is best that you discuss this with your attorney, do not panic, and don't do anything in a rush.
    0 Votes

  • 35x35
    Dec, 2008
    John
    and what is the worse case senero to happen if I get it dismissed over $90 left to pay? would I get a notice. what will I need to do at this point. Thanks
    0 Votes

  • 35x35
    Dec, 2008
    John
    I tried calling my attorney, but spoke to another paralegal and informed her, and she was very rude about it. I told her to have my paralegal call me, and I havnt heard back from him, I even e-mailed him, and he hasnt called back. and yes I am in a panic. its just my nature, I try to always do the right thing. thanks for your advise
    0 Votes

  • 35x35
    Dec, 2008
    John
    I was not aware I had to appear in court for the discharge.
    0 Votes

  • 35x35
    Dec, 2008
    Bill
    I strongly advise you to 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. Honestly, you may have created a serious problem that may not be easy to fix; while in a Chapter 13 bankruptcy plan, you are strictly prohibited from incurring new debt without receiving prior approval from the bankruptcy court or trustee. Since 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, and all of that work and money you put into your Chapter 13 could have been spent largely for naught. Generally speaking, I do not think that the court or the trustee pulls a bankruptcy debtor’s credit report at any point during the final audit before discharge. However, the court may (and probably will) ask you about any new debts you incurred, and if you do not disclose this information, you could be held in contempt of court, charged with perjury, or potentially even bankruptcy fraud, all of which are criminal and can result in serious fines and even jail time. I do not say this to scare you, but to drive home the point that you REALLY need to speak with your attorney ASAP. Everything will probably work out fine, but you need to be upfront and honest with your attorney so he can provide you with good advice and help you resolve this problem. I wish you the best of luck!
    0 Votes

  • 35x35
    Dec, 2008
    John
    I am at around the last payment or 2 in my chapter 13, I did not know I couldnt get credit cards without permission, I have been using them, then paying them off to establish a good credit score so I can purchase a home soon. how will the courts find out about the credit cards. and since I have filed prior to the 2005 changes in the law. what steps do I need to do. also during the completion Audit does the truster or the judge pull my credit report?
    4 Votes