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When your finances are dire enough for you to consider filing bankruptcy, you have more debt than you can deal with. Yet one of the most frequent questions we are asked is how soon you can get back into the credit game and start borrowing again.
First of all, we tell our clients to slow down and think hard before initiating new credit transactions after Chapter 7 or Chapter 13. It’s best to get your budget established, start saving and find ways to cut back on expenses to make the most of the financial fresh start bankruptcy offers.
Sometimes, though, clients going through Chapter 13 may need to get new credit while still under their repayment plan. This is not necessarily easy, but it is feasible. Depending on your circumstances, you may need to take out a personal loan, get a credit card or take out an auto loan or mortgage. If so, there are steps to take to make sure you don’t get in trouble with the bankruptcy court.
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If you need (or want) to take on new credit, you will first have to get the approval of your Trustee before you apply for anything. You will have to be current on your Chapter 13 repayment plan installments and explain why you want (or need) to take on the new debt. The Trustee will consider your request and evaluate how it may impact your ability to stick to your repayment plan.
You are most likely to be successful in your request for new credit if you can substantiate that it’s an emergency or there are special circumstances. The Trustee can recommend and the bankruptcy judge can affirm the maximum monthly payment your new credit can have and/or the maximum allowable interest rate you can take on.
What’s more common is that clients have urgent needs rather than emergencies. Examples of this may include your car breaking down and you need to replace it or your refrigerator dying and you need to finance a replacement through store credit. The Trustee will evaluate whether you can wait until your repayment plan is done before you take on the new credit.
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Another obstacle will be from creditors themselves. Many lenders will shy away from offering credit to a consumer still involved in a Chapter 13 bankruptcy. They may be more open to offering the credit if you have authorization from your Trustee to take on this new debt. One benefit to taking on new credit (if your Trustee will allow you to) is that it can help rebuild your credit.
If you are deep in debt and need help getting your finances sorted, contact the law offices of John T Orcutt to find out if a North Carolina bankruptcy offers the debt relief you need. Come in for a free consultation now. We’ll look at your financial circumstances and advise if a Chapter 7 or Chapter 13 bankruptcy are right for you or recommend an alternate course of action to get your finances sorted.