For many Maryland residents, filing for Chapter 13 bankruptcy can feel like the beginning of a long financial journey. While Chapter 13 provides a structured way to reorganize debts and protect assets, questions often arise about whether you can still access credit or take out a loan during the repayment plan. Whether you need a loan for essential transportation, an emergency expense, or to help with day-to-day financial stability, it’s important to understand how borrowing works when you are under a Chapter 13 bankruptcy plan. The rules are strict, and successfully getting a loan while in Chapter 13 requires both legal knowledge and careful planning.
Can You Get a Loan During Chapter 13 Bankruptcy?
What Chapter 13 Bankruptcy Means for Your Finances in Maryland
Under Chapter 13 bankruptcy, Maryland residents work with the court to create a repayment plan that typically lasts three to five years. During this time you make monthly payments to a Chapter 13 trustee, who distributes the funds to your creditors according to the confirmed plan. This repayment plan is designed to help you catch up on secured debts like car loans or mortgages, and make meaningful progress on unsecured debts like credit cards.
While you remain in bankruptcy, the law closely monitors your financial activities to ensure that your income continues to support the repayment plan rather than new debts. Because Chapter 13 is a supervised process, taking on new debt is not as simple as visiting a lender and filling out an application. New borrowing can directly affect your ability to complete the repayment plan. That’s why lenders and the bankruptcy court both treat loan requests differently than they would if you were not in bankruptcy.
Is It Possible to Get a Loan During Chapter 13 Bankruptcy?
The short answer is yes, but it’s much more difficult than obtaining credit outside bankruptcy. Under federal bankruptcy law, you are not automatically permitted to take on new debt once your Chapter 13 case is active. In most situations, you must first obtain permission from the bankruptcy court or your Chapter 13 trustee before securing a loan.
In fact, the general rule is that a debtor cannot incur new debt without prior authorization from the court or trustee. This requirement exists because bankruptcy law prioritizes repayment to existing creditors under the confirmed plan. A loan that disrupts your disposable income could jeopardize your ability to complete the plan, which would be harmful to your creditors.
If you attempt to borrow money, even from a lender that is willing to work with someone in Chapter 13, you will still need written court approval before finalizing the transaction. Borrowing without approval can lead to serious consequences, including objections from the trustee or even dismissal of your bankruptcy case.
When Can You Get Court Approval for a Loan?
Maryland residents in Chapter 13 may be able to get court approval for a loan under limited circumstances. The bankruptcy court will consider whether the loan is necessary and whether it will interfere with your ability to complete your repayment plan. Generally, courts are much more willing to approve loans that fall into one of the following categories:
- Essential transportation: If you need a vehicle to maintain employment or meet family responsibilities, the court may consider a loan to buy or finance a necessary car.
- Emergency needs: Loans used for unforeseen emergencies, such as urgent medical expenses or critical home repairs, may be justified in the eyes of the court.
- Necessary household items: In certain cases, the court might approve credit for necessary items like appliances, especially if the lack of the item impacts your health or ability to work.
Before seeking a loan, you will typically need to file a motion with the bankruptcy court or an application with the trustee, explaining the loan amount, terms, and reasons why the loan is necessary. Your lawyer will help prepare and submit these documents on your behalf.
Challenges and Considerations When Borrowing in Chapter 13
Even if you obtain court approval, getting a loan during Chapter 13 bankruptcy remains challenging. Credit scores are likely low while your bankruptcy is active, and many lenders are hesitant to extend credit to someone undergoing a bankruptcy process. Some lenders will offer loans to people in bankruptcy, but they often come with higher interest rates, stricter terms, and limited amounts.
Additionally, the court must ensure that your repayment plan remains feasible even after adding a new loan obligation. You must demonstrate that you can continue making your Chapter 13 payments and manage the new loan payments without falling behind. The bankruptcy trustee and judge will carefully review your income, expenses, and overall financial picture before granting approval.
It’s also worth noting that new debt can potentially complicate your move toward financial stability. While the loan may provide short-term relief, it might extend the time it takes to complete your bankruptcy plan or reduce the amount available to satisfy creditors under that plan. A bankruptcy attorney can help you weigh these pros and cons.
Alternatives to Getting a Loan in Chapter 13
If obtaining a loan through the bankruptcy court is not feasible or advisable, there are alternatives Maryland residents might consider:
- Modify your Chapter 13 plan: If your financial situation changes, you can work with your attorney to request a plan modification that lowers your payments or adjusts terms.
- Negotiate with creditors: In some cases, direct negotiation with creditors for deferred payments or lower interest can provide relief without new debt.
- Build savings or emergency funds: While difficult during bankruptcy, careful budgeting and saving may reduce the need for new borrowing.
These strategies can sometimes provide the financial breathing room you need without adding complex debt obligations during your bankruptcy case.
Contact Nick Del Pizzo For A Bankruptcy Attorney In Maryland
If you are a Maryland resident wondering whether you can get a loan during your Chapter 13 bankruptcy, you do not have to navigate this complex process alone. Nick Del Pizzo is an experienced bankruptcy attorney serving Dundalk, Baltimore, and all of Maryland, and he can help you understand your legal options. He will review your financial situation, explain whether new credit is appropriate, and guide you through the process of seeking court approval if needed. Do not risk jeopardizing your bankruptcy case by attempting to borrow without proper authorization. Contact Nick Del Pizzo today for personalized guidance and dedicated legal support in managing your Chapter 13 bankruptcy with confidence and clarity.
