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The process to obtain new debt during a repayment period

In a Chapter 13 bankruptcy case, a Texas debtor can ask to accrue new debt during the repayment period. However, a trustee must review the request, approve it and send a motion to incur new debt to the judge. A copy of the motion will also be sent to creditors. If all parties agree to the request, an order to incur debt will be created. The debtor will then be able to complete the process of applying for a loan.

If an individual is seeking a car loan, they will first find a vehicle and negotiate the terms of the deal. The loan term, the interest rate and the monthly payment will be included on a buyer's order sheet. This sheet is what the trustee will look at when determining if the loan is reasonable. There is a chance that the vehicle could be sold before the order to incur debt is handed down.

However, if the words "or similar" are included on the order sheet, a buyer can simply choose another vehicle at the same price point. Otherwise, the loan approval process would need to start at the beginning. Those who fail to obtain approval before incurring a new debt could be sued by creditors or have their cases dismissed.

In a Chapter 13 bankruptcy proceeding, debts are repaid over a period of three or five years. Since this type of case takes so long to resolve, it's reasonable to expect that a person may have a legitimate need to incur new debt. An attorney may be able to explain the process of incurring new debt. Counsel could also help a debtor decide whether it's worth going deeper into debt or if there are other ways to handle a situation.

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