The Short Answer
If you need to take on new debt while in an active Chapter 13 bankruptcy, you cannot do so without court approval — your attorney must file a Motion to Incur Debt on your behalf first. To get that motion filed, you'll need to gather recent pay stubs, document your current expenses, explain why the debt is necessary, and obtain loan terms in writing from a lender before actually signing anything. The court will only approve the motion if the debt is genuinely necessary and you can demonstrate you can afford the new payments alongside your existing Chapter 13 plan.
While you are in your Chapter 13 bankruptcy, plenty of emergencies can come up that will make it crucial for you to incur debt. These emergencies can range from needing to get a newer vehicle or to pay for a costly, but necessary, medical procedure.
Before you incur any debt a Motion to Incur Debt MUST be filed with the Court. This is something your attorney can prepare and file for you. To assist your attorney in the process you will need to take the following steps:
- Gather the most recent 60 days of pay stubs for yourself and your spouse (if it is a joint filing)
- Fill out a new expenses section
- Provide your attorney a short explanation as to why you are needing to incur this debt
- Find a financing company and find out what terms they are willing to offer for the loan, i.e. monthly payment amount, interest rate, length of repayment, etc. Something with the terms listed in writing is needed for the Motion. (Important Note: be sure to not actually take out the loan yet. Instead, just get the terms and, if possible, get pre-approved.)
- Make sure the terms of the loan fall within the following criteria:
- Repayment term of 60 months or less
- Monthly payment (you need to show the court you can afford the loan)
- Interest rate of 18% or less
- Amount to be financed
- Contact your attorney and provide them with the above information
Before taking any of the steps above, please make sure that what you are requesting is absolutely necessary. The Court will only approve a Motion to Incur Debt if it is for something that is truly needed.
If you are trying to incur new student loans or something along those lines you need to be able to show that the new degree will almost certainly increase your regular monthly income.
Your attorney will need to make sure they can show to the Court that you can afford the new debt you are requesting, which is why the pay stubs and expense form are needed. If you are unable to show you can afford the new debt, the Court will not approve the Motion.
Please allow at least one to two weeks for your attorney to prepare the motion.
Key Takeaways
- You must get court approval before taking on any new debt during a Chapter 13 bankruptcy — skipping this step can jeopardize your entire case.
- Gather the most recent 60 days of pay stubs for yourself and your spouse if it is a joint filing, as the court needs to verify you can afford the new payment.
- Get pre-approved or obtain written loan terms from a lender first, but do not actually close on the loan until after the court grants approval.
- The court will scrutinize the loan terms — acceptable financing must carry an interest rate of 18% or less and a repayment period of 60 months or less.
- For student loans, you must show the new degree will directly and meaningfully increase your monthly income — general educational interest is not enough.
- Plan ahead and contact your attorney at least one to two weeks before you need the debt approved, as preparation and filing take time.
Attorney Insight
The mistake I see most often is clients who go ahead and sign for a car loan or medical financing without telling us first — they assume the purchase is obviously necessary and the court will rubber-stamp it. What actually happens is the trustee flags the unauthorized debt, and the client now has a serious compliance problem that can put their entire Chapter 13 plan at risk. Get the terms in writing, get pre-approved if you can, and then call us before you sign anything. The motion takes one to two weeks to prepare, so reaching out early is critical — emergencies don't eliminate the process, they just make the timeline tighter.
