Obtaining Credit While In A Chapter 13 Bankruptcy Case

This video talks about obtaining credit while in a Chapter 13 bankruptcy case.

Jesse Barrientes:         What happens if – because it’s going to be lean living during this time.  What happens if I need to get credit?  If I’m going to be able – if I’m locked into this plan for three years or five years, and I need – I probably shouldn’t, not the greatest idea but I need credit, Dave.  Help me out.

David Siegel:               Well, you are not going to get general credit for credit cards are things like that but what you will see is a case where someone has a vehicle in a bankruptcy Chapter 13 and the vehicle becomes in disrepair where it cannot run.  That person needs transportation to get to their jobs so they can pay for the Chapter 13.  So in that case, what we will do is we will have them go scope out a vehicle, they will get the make, the model, the approximate amount of financing and the interest rate; almost like a good faith estimate.  And then we will bring a Motion to Incur Credit before the court.  It takes about 3 to 4 weeks.  And we are basically saying to the court, we need to purchase this vehicle.  It’s at a low rate, low dollar amount for month.  We have the ability now to do it and we need it to reorganize.  And most likely the court will grant that as long as the vehicle is reasonable, the monthly payment is low, and the interest rate is not high.

Jesse Barrientes:         But it’s going to be outside of the plan.  Is it?

 David Siegel:               It is going to be outside of the plan.

Jesse Barrientes:         So how is a dealer going to extend credit to me when I’m in a bankruptcy?

David Siegel:               Well, the dealer knows if you don’t make a payment, they can hook the vehicle and sell it at auction.  So they are not really –

Jesse Barrientes:         Because it’s not included in the Chapter 13.

David Siegel:               It’s not included in the Chapter 13 and it’s a secured item.  So if you can’t make a payment, they will repossess it, they will sell it at auction.  They haven’t lost everything.  They’re going to be able to recover.  And they can still come after you for the deficiency because it’s a post petition or after filing acquired debt.

Jesse Barrientes:         So in some instances, it actually puts the dealer in a little bit better position.

David Siegel:   Right.  Dealers have no problem lending to a Chapter 13 bankruptcy client as long as there is court approval.  Without court approval, they can’t do it.  But court approval is relatively easy as long as the parties are reasonable in terms of the purchase