Tavere

Free Case Evaluation

510-255-4646
  • Home
  • About Firm
  • Practice Areas
  • Testimonials
  • Attorney
  • Blog
    • Chapter 7 Bankruptcy
    • General Bankruptcy
    • Chapter 13 Bankruptcy
    • Bankruptcy Law
    • Bankruptcy News
    • Types of Debt in Bankruptcy
      • Bay Area Bankruptcy Attorney
  • Contact Us
Stop Worrying About Your Debt

A Better Tomorrow

Starting Today

Stop Worrying About your Debt.
Call us Now to Take the First Step.

Click Here
Millions in debt discharged for our clients

Real Concern

Real Help

Millions in debt Discharged
For our Clients. Call Today, let us Help!

Click Here

Chapter 13 Postpetition Debt

Admin on July 1, 2016 Posted in Bankruptcy Law, Bankruptcy News, Blog, Chapter 13 Bankruptcy

Generally, bankruptcy reorganization is applicable to prepetition debt, which refers to liabilities arising prior to the bankruptcy filing, not postpetition debt. Chapter 13 bankruptcy provides an exception to that rule. A Chapter 13 debtor, under certain circumstances, can include postpetitition consumer debt and taxes in the Chapter 13 plan. This requires trustee approval and that the postpetition creditor files a claim.

Consequences

There are important consequences for a creditor who files a postpetition claim. If the creditor does not file a postpetition claim, the debt will not be subject to discharge upon plan completion and the creditor can collect from the debtor upon completion of the Chapter 13 case. If the creditor files the postpetition claim, it may be subject to discharge if approved and not paid in full upon completion of the plan. To accomplish this, a creditor may be required to file a postpetition claim as a condition necessary to secure the trustee’s approval to incur the debt.

Type of Postpetition Debt Allowed

Postpetititon Chapter 13 debt subject to a plan can be either tax debt or consumer debt. Other debt would be considered basic postpetition debt not subject to the bankruptcy court.

Any entity holding a claim for taxes that become payable to a governmental unit while the case is pending has the option of filing a postpetition proof of claim in the debtor’s bankruptcy case. The timing depends on the type of tax. For income taxes, they becomes “payable” when due. Other types of taxes, such as sales tax, property tax, and state income taxes, may have different due dates. Local schedules and tax laws would determine the proper dates.

The second type of allowed postpetition claim is consumer debt necessary for the debtor’s performance of the plan. The Bankruptcy Code defines “consumer debt” as debt incurred by an individual primarily for a personal, family, or household purpose. The debt could be for medical expenses, vehicle repairs, or the purchase of a vehicle necessary to get the debtor to and from work. Regardless of the specifics, it must be incurred to assist the debtor in the performance of the plan.

Creditor Caution

An creditor extending credit to a chapter 13 debtor and files a postpetition claim must proceed with caution to ensure that any resulting claim will be allowed and paid in full under the plan. First, although incurred postpetition, the Bankruptcy Code is clear that such a claim will be treated as if the claim had arisen prepetition. Second, the Bankruptcy Code imposes a requirement that the debt must be for “property or services necessary for the debtor’s performance under the plan.” Third, trustee approval is required. As such, if the creditor knew, or should have known that approval of the debt by the trustee was practicable and was not obtained then the Bankruptcy Code makes clear that the postpetition claim will be disallowed.

Because the trustee is familiar with the debtor’s financial circumstances, the trustee in the best position to determine whether the debtor needs to borrow postpetition and is financially able to handle the new debt and plan payment. The payment postpetition debt under a plan affects other prepetition unsecured creditors who rely on the debtor’s postpetition income to fund the plan. The allowance of such debt may result in a smaller distribution under the plan since the postpetition claim may be paid prior to or contemperanious with other unsecured claim holders. This results in a difficult situation for the other unsecured creditors: does the debtor’s infusion of cash help or hurt? On the one hand, an infusion of cash can help the debtor repay under the plan. On the other hand, an infusion of cash means another creditor to split the plan’s proceeds. Thus, when dealing with a chapter 13 debtor seeking postpetition debt, a creditor should insist on trustee approval prior to the extension of credit.

Extraordinary Circumstances

With that said, the approval of the trustee is not always practicable in every circumstance. A debtor may have an urgent medical situation that cannot wait for the trustee’s approval. A creditor may be inexperienced and not realize approval of the chapter 13 trustee is necessary and lend the money to the debtor. Though the debtor should attempt to get the chapter 13 trustee’s approval for the debt, under such circumstances the Bankruptcy Code may allow the added debt due to extraordinary circumstances.
If you are in serious debt and earning a wage, Chapter 13 bankruptcy may be able to provide you with a fresh start. Chapter 13 is flexible but also complex. Turn to Melanie Tavare, a reliable and seasoned bankruptcy attorney in the Bay Area. Contact her today.

Recent Posts

  • Filing for Bankruptcy Individually vs. Jointly: The Advantages and Disadvantages

    Filing for bankruptcy is an important decision to make, and it can be further complicated when you are married and considering filing joint

    category : Bankruptcy Law, Blog

  • How Long Does Chapter 13 Bankruptcy Take?

    When it comes to filing for bankruptcy, the process can be daunting, especially when you do not understand how it works and have no idea wh

    category : Bankruptcy Law, Blog

  • Pitfalls to Avoid When Filing for Bankruptcy

    Filing for bankruptcy is a difficult and overwhelming decision to make. As you work through the process of filing, it is important to know

    category : Bankruptcy Law, Blog

  • When Can You Start to Rebuild Credit After Bankruptcy?

    Filing for bankruptcy can be a tough financial decision. It can also have a long-lasting impact on your credit rating, making it hard to op

    category : Blog, Rebuilding Credit

search this year

  • January 2023
  • December 2022
  • Search by Year

  • 2023
  • 2022
  • 2021
  • 2020
  • 2019
  • 2018
  • 2017
  • 2016
  • 2015
  • 2014
  • 2013
  • 2012
  • img

    Quick Links

    • Bay Area Bankruptcy Attorney
    • About Firm
    • Practice Areas
    • Attorney
    • Communities Served
    • FAQ
    • Disclaimer
    • Contact Us

    Follow Us

    • Facebook
    • Twitter
    • Google
    • Yelp

    Contact Us

    • Oakland Office

      1300 Clay St. Suite 600
      Oakland, CA 94612

    • Hayward Office

      24301 Southland Dr.
      STE. 310
      Hayward, CA 94545

    • 510 255 4646

    We serve the following localities: Alameda County, Alameda, Berkeley, Castro Valley, Fremont, Hayward, Livermore, Oakland, San Leandro, Union City, Contra Costa County, Antioch, Brentwood, Concord, Martinez, Pittsburg, Richmond, Walnut Creek, San Francisco County, San Francisco, Albany, Ashland, Dublin, Emeryville, Newark, Pleasanton, San Lorenzo, and Alamo.


    The Law Offices of Melanie Tavare is a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code


    |

    2022 © Copyright law office of Melanie Tavare