There are various ways of dealing with debts that arise during the course of your Chapter 13 “adjustment of debts” case.
On Monday we wrote about debts that arise before filing a Chapter 7 case and those that arise after filing. Those that arise before filing—“pre-petition” debts—are included in the “straight bankruptcy” Chapter 7 case. If they are the kind of debts that can be written off in bankruptcy (“discharged”), then they are. Those debts that arise after filing—“post-petition” debts—are not included and are not discharged.
A Chapter 7 case usually takes only about 4 months to complete. There is nothing in the law preventing you from incurring new debts at any time. On the other hand a Chapter 13 “adjustment of debts” case takes 3 to 5 years. You are usually not allowed to incur new debts during that time except with court or trustee permission. Also, your payment plan is based on a budget that usually does not have room for paying any new debts. So Chapter 13 presents some special issues in dealing with pre-petition and post-petition debts.
Post-Petition Debts in Chapter 13
Just like in Chapter 7, in Chapter 13 post-petition debts are not covered in the case. That means that a new debt can usually not be added to your pre-petition debts in your Chapter 13 plan. In particular, you can’t discharge a post-petition debt in part or in full along with your pre-petition debts. Instead, you have to pay any post-petition debt in full.
But there are usually sensible ways of dealing with them.
To make practical sense of this, here are some examples of post-petition debts in a Chapter 13 case.
Minor new debts usually cause no problems. These are more like expenses than debts. For example, if in the middle of your Chapter 13 case you have a doctor’s appointment, and a couple weeks later you get a bill for $120 for the part that your medical insurance didn’t pay, that $120 is technically a new debt. But hopefully your budget allows for it, and you have the money to pay the bill when you get it.
What if the debt is larger, say, $850 to replace all the tires and the brake rotors/pads on your vehicle? Your Chapter 13 budget should have some money every month earmarked for vehicle maintenance and repairs. In the best case scenario you’ve not needed to use that monthly amount during the last several months, and have saved it for just this kind of situation. So you have the $850 available when needed.
But you may not have that money, if it’s gone to ongoing vehicle maintenance and repair costs or other expenses. If you don’t have the money right away, and you can delay getting the tires and brakes for a few months, you could set the budgeted amount aside each month until you have enough.
Amended Chapter 13 Plan or Permission to Incur New Debt
But what if those tires and brakes were at the point that it’s really unsafe to wait? Then your bankruptcy lawyer may be able to solve the problems by amending your Chapter 13 plan. That may reduce your plan payments temporarily, or maybe even permanently, so that you can afford the tires and brakes.
Or the vehicle repair shop may be willing to let to pay on credit. If so, it may be pretty straightforward for you to incur that new debt. You may simply be allowed to do that if the amount of credit is under a certain dollar amount. Or there may be a straightforward procedure in your jurisdiction to get permission from your Chapter 13 trustee or bankruptcy judge. Or if necessary, your lawyer can incorporate that change into a formal amended Chapter 13 plan.
There is very likely some sensible way to deal with this kind of needed new debt.
A Large New Post-Petition Debt
What if you unexpectedly incur a much larger new debt because of some emergency during your Chapter 13 case? A vehicle accident or medical emergency come to mind.
Again, the new debt can’t be included in your Chapter 13 case, and can’t be discharged. So, depending on how much would not be covered by insurance, having to pay that new debt could jeopardize your ability to pay your Chapter 13 plan payments. That situation may be helped by amending your plan, but sometimes that’s not enough. This is all especially true if that accident or medical emergency significantly affects your income and expenses.
There are two relatively drastic solutions to such drastic changes in circumstances.
You could convert your Chapter 13 case into a Chapter 7 one. Your changed circumstances may make the goals of the Chapter 13 case no longer desirable or feasible. The converted Chapter 7 case can include the new debt—indeed any debts incurred since the Chapter 13 filing.
Or you could dismiss your present Chapter 13 case and file a new one. If the goals of the original Chapter 13 case are still viable, including the new debt(s) in a new Chapter 13 case may be your best solution. There is generally no problem getting the bankruptcy court to dismiss a case under these circumstances. And there is no restriction on filing a new case if you did not receive any discharge of debts in the prior one.
The bottom line is that if new debts arise during a Chapter 13 case, there are generally ways to deal with them.