Kentucky Bankruptcy Law

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Chapter 13: What to do with new, unexpected debts

The basic rule in bankruptcy is that debts incurred prior to the filing of a bankruptcy petition, either Chapter 7 or Chapter 13, are included in the bankruptcy, but debts incurred after filing remain unaffected by the case. In Chapter 7, that is a hard and fast rule, so if you file a Chapter 7 on January 14th, 2013 and then have an accident and get rushed to the emergency room for really expensive tests on January 15th, 2013, those thousands in new medical bills are yours to keep (at least for four years). There is an exception in Chapter 13.

Turn with me to the very fun provision of 11 U.S.C. Sect. 1305 and look at subsection (c). This means that if a creditor lends money to someone in a Chapter 13 without making sure the court approved it, then they cannot get paid through the Chapter 13. The converse of this is that creditors who had no way of getting such approval can file their claim and hope to get paid.

There are two terms that bear some explanation. First, “should have known” basically means creditors can check credit reports prior to loaning money and that would clue them in to a Chapter 13 having been filed. Second, “practicable” does not mean practical, it means if there is any way possible. So, those terms together set a very high bar to reach before a new debt can be added in.

One scenario that meets this bar would be an urgent, unexpected health crisis that had to be treated soon. I can only speak for practices of the Eastern District of Kentucky Bankruptcy Court, but I have seen new debts such as these to be added in to a Chapter 13 plan and their claims allowed by the Chapter 13 trustee. I am at a loss, though, to think of other examples that would pass.

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January 14, 2013 - Posted by | Bankruptcy, Chapter 13, Chapter 7, Discharge, Plan | , , , , , , , , , , ,

2 Comments »

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