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Seeking a loan during Chapter 13 bankruptcy

On Behalf of | Oct 19, 2023 | Chapter 13 Bankruptcy |

Chapter 13 bankruptcy might be appropriate for Tennessee debtors struggling to overcome their financial obligations. Once someone files for Chapter 13 and the bankruptcy court approves the required plan, collection action ceases, and the debtor might attempt to resume a routine fiscal life. The debtor might find it necessary to take out a loan for some purpose, which can be complex in Chapter 13.

Loans and Chapter 13

When someone files for Chapter 13, they enter a debt repayment plan of three to five years supervised by the court. Often, the court will discharge some or all unsecured debt during bankruptcy proceedings. Unsecured debt may refer to credit card or personal loan obligations. Procuring a personal loan may be possible after exiting bankruptcy, but some may wonder if they could seek a loan during Chapter 13. Doing so could be difficult.

State and federal regulations factor into any plans to acquire a loan under Chapter 13 bankruptcy. In general, debtors should expect to seek and obtain the court’s permission to take a new loan and accrue new debt.

Concerns about loan approvals

Personal, family or household purposes may be the only reasons the court would consider approving the loan. Even if the court provides approval, no guarantees exist the lender will approve the loan. The would-be borrower’s bankruptcy status would be apparent to the lender.

The court and the trustee will review the paperwork submitted by the debtor. The debtor must also file a motion with the court for a hearing. So, while it is possible to apply for a loan and receive one during Chapter 13, the debtor must comply with many steps.