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Can I incur new debt in NJ while I am in a chapter 13?

In general, no you cannot. Your income during a chapter 13 plan is considered an asset of your bankrupt "estate," as it is most often the source of your payments and what makes your plan feasible.

When you incur new debt, you are usually decreasing your monthly "disposable income" that is used for your payment, thus running the risk of making your plan no longer feasible. Therefore, doing something like getting a new credit card is generally a really bad idea!

However, things can happen in the 3 to 5 years of your plan that can make incurring new debt a necessity. This is usually where you need to purchase/lease a car or make some emergency home repairs. In those cases, you would need to get the court's permission first through a motion

What If I Need to Buy a Car?

If you are in a chapter 13 in Southern New Jersey (Camden, Gloucester, Salem, Cumberland, Atlantic, and Cape May Counties, and the southern part of Burlington County) and need to buy or lease a car, if you meet certain crieria, you may obtain a "no position" letter from the trustee. According to her web site, the criteria for this letter are:

  • The new vehicle payment must not exceed $300.00 a month and the interest rate may not exceed 18%. If the new vehicle payment exceeds $300.00 a month and/or interest rate is over 18% then you must contact your attorney and seek court approval.

  • If you are currently paying for another vehicle through your Chapter 13 you may need to contact your attorney and obtain court approval to purchase and finance another vehicle.

Once you have selected a new vehicle but before you purchase, you must contact her office for the vehicle financing paperwork.

Contact Your Bankruptcy Attorney First!

In any case, if you find you need to incur new debt, you should contact your attorney first. No matter how necessary you may think it is, the incurring of new debt could have a serious effect on your plan. It may also not actually be necessary.

For example, if you are in a plan shorter than five years, you might be able to get permission to suspend plan payments while you pay for this other expense and then resume them later by extending the term of the plan.

Incurring too much debt is what got you into bankruptcy in the first place; adding more should only be done out of absolute necessity and after giving it serious thought.

Haven't Filed Yet?

If you live in southern New Jersey and are considering filing bankruptcy but have not filed yet, please feel free to call me at 856-432-4113 or contact me through this site for a free consultation in my Woodbury office to discuss your case.

If you are looking for more information about bankruptcy, then download my free book,Top Questions People Ask About Filing Bankruptcy in New Jersey.

Steven J. Richardson
Bankruptcy, Collections, Student Loan, DUI and Traffic Court attorney in Woodbury, NJ.