Can You Get a Loan While in Chapter 13 Bankruptcy?

You can get a loan while in Chapter 13 bankruptcy, but almost always only after the bankruptcy court or your Chapter 13 trustee gives you permission. Your disposable income is already committed to a repayment plan lasting three to five years, so any new monthly payment has to be cleared against what you owe existing creditors first.¹ The approval process involves a written motion, a notice period, and sometimes a hearing before a judge.

Why Permission Is Required

Under 11 U.S.C. § 1305, a creditor can file a claim for debt you take on after your bankruptcy filing, but only if that debt covers property or services necessary for you to keep up with your repayment plan, such as a working car or medical treatment.² The statute does not cover discretionary borrowing for things like vacations, electronics, or luxury upgrades.

The same section says a post-filing claim will be disallowed if the lender knew, or should have known, that trustee approval was available and did not obtain it.² That gives both sides a strong reason to follow the process. Most lenders who work with borrowers in active bankruptcy will refuse to release funds without a signed court order.

Your Chapter 13 trustee, the court-appointed official who collects your plan payments and pays creditors, is the first reviewer of any borrowing request. The trustee looks at whether the new payment fits your budget without reducing what creditors receive. If it doesn’t, the trustee can oppose the request and recommend denial.¹

What the Court Weighs

Two questions drive the decision: is the debt genuinely necessary, and can you afford it without shortchanging creditors?

Necessity. The loan should address a real need tied to finishing your plan. Replacing a broken-down commuter vehicle, fixing a roof leak, or covering essential medical costs generally qualifies. Financing a boat, high-end furniture, or a new television generally does not.

Affordability. Your updated budget has to show you can cover the new payment while continuing to make full plan payments on time. If there’s no surplus, expect a denial.

Terms. Judges also look at the interest rate, loan amount, and repayment period. Rates for borrowers in active bankruptcy tend to run well above standard market rates, and courts favor terms that minimize the strain on the plan.

A strong motion explains how the loan actually helps you complete bankruptcy. Trading a vehicle that constantly needs repairs for a reliable used car, for example, can lower monthly maintenance costs and leave more money for creditors — a persuasive argument.

Filing a Motion to Incur Debt

The formal process starts with a written Motion to Incur Debt filed with the bankruptcy court handling your case. Many courts publish a standard form for this, and your bankruptcy attorney typically prepares and files it.

The motion needs specific financial details about the proposed loan:

The total amount you plan to borrow.
The interest rate and monthly payment the lender is offering.
A clear description of what the loan is for and why it’s necessary.
Updated income and expense schedules showing you can handle the new payment alongside your plan obligations.

Attach evidence of the lender’s terms, such as a pre-approval letter or a draft loan agreement. A copy of the trustee’s recommendation, whether they approve or oppose the request, is typically included as well.³ Many debtors contact their trustee before filing to gauge whether opposition is likely.

Notice, Hearing, and the Court Order

After the motion is filed, copies must be served on the trustee and all creditors listed in your schedules. That starts a notice period, generally around 21 days, during which any interested party can file a written objection.

If nobody objects, the court can grant the motion without a formal hearing. If the trustee or a creditor raises concerns about the terms, your ability to pay, or whether the expense is really necessary, the judge will schedule a hearing. You or your attorney will need to explain why the loan makes sense under your current circumstances.

When the motion is approved, the judge signs an order authorizing you to take on the debt. That order is the document your lender needs to close and release funds. Most lenders will not fund without it, because a loan made without proper authorization can be disallowed under § 1305(c), leaving the lender with an unenforceable claim.²

When You Can’t Wait

Sometimes three weeks isn’t an option. A medical emergency, a sudden car breakdown that stops you from getting to work, or storm damage to your home can require immediate action. Courts recognize this and may allow an expedited motion with a shortened notice period.

For genuine emergencies, especially catastrophic medical events or steps needed to protect your home, bankruptcy law does not expect you to obtain prior approval when doing so is impractical. Notify your trustee as soon as possible and be ready to document the expense after the fact. You may also need to modify your plan to account for the new cost, and the creditor may need to file a proof of claim.

Some trustees can informally approve smaller necessary expenses, like an urgent car repair, without a full motion and judge’s signature. Whether that option exists and the dollar limits involved depend on the trustee and local court practice. Keep receipts and be able to show the expense fits your budget. The necessary-versus-optional line still decides it: fixing a furnace in January is a real need; financing an entertainment system is not.

Buying a Home During Chapter 13

A mortgage is one of the most common reasons people want to borrow mid-plan. It’s possible, but the rules are stricter, and your options depend on the loan program.

FHA Loans

The Federal Housing Administration allows borrowers in an active Chapter 13 to qualify for an FHA-insured mortgage after at least 12 months of the repayment plan have been completed. Those 12 months of payments must have been on time and your overall payment performance satisfactory. You also need written permission from the bankruptcy court, and the lender must determine that the circumstances that led to bankruptcy are unlikely to recur.⁴

VA Loans

Veterans and eligible service members may qualify for a VA-backed home loan during an active Chapter 13. Like the FHA program, this typically requires at least 12 months of on-time plan payments and approval from the trustee or the court. VA loans carry no private mortgage insurance requirement, which can make them more affordable for qualifying borrowers.

Conventional Loans

Conventional mortgages backed by Fannie Mae or Freddie Mac are generally not available while you’re still making Chapter 13 plan payments. These programs typically require a waiting period of at least two years after discharge. In an active case, FHA and VA loans are the realistic paths to homeownership.

Whichever program you pursue, the court approval process still applies. The motion has to show that the mortgage payment, property taxes, insurance, and maintenance costs all fit your budget without threatening your plan payments.

What Happens If You Borrow Without Permission

Skipping the approval process is one of the most serious mistakes you can make during Chapter 13, and it can unravel the entire case.

Dismissal or conversion. The court can dismiss your case or convert it to Chapter 7 for cause, including a material default on a term of your confirmed plan. Unauthorized borrowing that diverts income away from plan payments can qualify. Dismissal ends your bankruptcy protection, and creditors can resume collection immediately.⁵
Lender’s claim disallowed. If the lender knew or should have known trustee approval was available and didn’t get it, the lender’s claim can be disallowed entirely. That doesn’t erase the debt; it just means the lender can’t collect through the bankruptcy, and you still owe the money outside it.²
Bad faith allegations. The trustee or a creditor could argue that unauthorized borrowing shows you aren’t acting in good faith, which is required both for plan confirmation and for your original filing. A bad faith finding can block confirmation or, in serious cases, contribute to denial of discharge.⁶

Always get permission first. Even if the expense seems small or obviously necessary, the risk of skipping the process outweighs the inconvenience of filing a motion.

How a New Loan Changes Your Plan

Once new debt is approved, your original repayment plan may no longer fit. A new monthly payment changes your expense picture, which can require a formal plan modification under 11 U.S.C. § 1329. That statute lets you, the trustee, or an unsecured creditor request changes to a confirmed plan at any time before you finish paying.⁷

A modification can increase or reduce what a class of creditors receives, or stretch the timeline, though the plan can’t run longer than five years from the date your first payment was originally due.⁷ If a new car payment reduces what’s available for unsecured creditors, for instance, the court might extend a three-year plan to five so those creditors still receive their minimum.

The modified plan must meet the same legal standards as the original, including good faith and the rule that unsecured creditors receive at least what they would have gotten in a Chapter 7 liquidation.⁶ It becomes effective unless the court disapproves it after notice and a hearing. In practice, the motion to incur debt and the motion to modify the plan are often filed together.

Improving Your Chances of Approval

A few practical steps go a long way:

Call your trustee’s office before filing anything and explain what you need. Many trustees will give informal guidance on whether your request is likely to succeed and what documentation they expect.
Shop for reasonable terms. Getting quotes from multiple lenders who work with bankruptcy borrowers shows the court you tried to find the best deal, and lower rates and shorter terms improve your odds.
Keep your plan payments current. A clean payment history matters generally, and it’s essential for mortgage requests, since FHA and VA both require at least 12 months of satisfactory performance.⁴
Explain necessity in concrete terms. “I need a car” is weaker than a motion showing your current vehicle failed inspection, repairs exceed its value, and reliable transportation protects the income that funds your plan.
Budget for attorney fees. Your bankruptcy attorney typically charges separately to prepare and file the motion. Ask upfront.

The approval process can feel slow when the need is urgent, but working through it protects the case you’ve already invested in. Borrowing without permission risks losing everything you have built toward a fresh start.

1
United States Courts. Chapter 13 – Bankruptcy Basics
2
Office of the Law Revision Counsel. 11 USC 1305 – Filing and Allowance of Postpetition Claims
3
United States Bankruptcy Court. Motion to Incur Debt
4
U.S. Department of Housing and Urban Development (HUD). How Does a Bankruptcy Affect a Borrowers Eligibility for an FHA Mortgage
5
Office of the Law Revision Counsel. 11 US Code 1307 – Conversion or Dismissal
6
Office of the Law Revision Counsel. 11 US Code 1325 – Confirmation of Plan
7
Office of the Law Revision Counsel. 11 US Code 1329 – Modification of Plan After Confirmation