In chapter 13, you are not permitted to borrow or use any other form of credit (exceeding a cumulative total of $5,000) unless you have permission from the bankruptcy court. The Eastern District of Virginia Bankruptcy Court standard chapter 13 plan contains the following provision located at paragraph 11:
“Incurrence of indebtedness. The debtor(s) shall not voluntarily incur additional indebtedness exceeding the cumulative total of $5,000 principal amount during the term of this Plan, whether unsecured or secured, except upon approval of the Court after notice to the Trustee, any creditor who has filed a request for notice, and other creditors to the extent required by the Local Rules of this Court.”
Debtors incur post-petition debt in the following ways:
• Financing or leasing a car
• Financing or refinancing a house
• Incurring student loans for yourself or others
• Financing an appliance, television, furniture, etc.
• Entering into a “rent to own” contract
• Borrowing against your retirement account
• Advances on your salary
• Obtaining a loan or signing a note, even as a co-signor or guarantor
• Pledging your property as collateral for a debt
This article is concerned solely with incurring students loans. Courts and trustees are hesitant to allow a debtor to incur additional student loans as they may impact the chapter 13 plan. In reviewing a motion to incur student loan debt, bankruptcy courts may review the following issues:
• Has the chapter 13 trustee agreed to the request?
• How much student loan debt is being incurred?
• When will the student loan debt need to be paid back?
• What are the repayment terms? What is the interest rate?
• What is the current distribution to unsecured creditors in the chapter 13 plan?
• Will the student loan debt impact the distribution to unsecured creditors?
• Will the student loan debt lead to an increase in the debtor’s income?
• Does the debtor have room in their budget for the student loan repayments?
In the end, the Court may grant the motion to incur student loan debt based on the judgment of the debtor and their counsel. Put another way, if it makes sense for the debtor to incur student loan debt, the Court may grant the debtor permission.
Ronald Page is a consumer bankruptcy attorney based in Richmond, Virginia. Please contact Ronald Page if you need assistance resolving your personal debts.
Contact Ronald Page
Ronald Page, PLC
PO Box 73087
N. Chesterfield, VA 23235
(804) 562-8704
rpage@rpagelaw.com