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Incurring new debts in the midst of the bankruptcy process

Charlotte Bankruptcy Lawyer Bryan W. Stone of Arnold & Smith, PLLC answers the question “Can I keep my car if I file bankruptcy?”


A recent article discussed how Caesars Palace plans to give its prime Las Vegas Strip property a facelift in time for its 50th anniversary. The facelift won’t come cheap, with the company revealing that the remodel of one tower of the property will cost nearly $75 million. What makes this interesting, at least from a bankruptcy perspective, is that Caesars Palace’s parent company, Caesars Entertainment Corp., is currently in the midst of a Chapter 11 bankruptcy and reorganization process.


Las Vegas Sign Charlotte Debt Lawyer Mecklenburg Bankruptcy AttorneySo how is it possible that a company in the midst of a massive bankruptcy case could be considering taking on tens of millions in new debt? First, let’s put things in perspective. Caesars Entertainment is a massive gambling enterprise that has an estimated $18.4 billion in debt that needs restructuring. Of that epic amount, the company has said it plans to reduce nearly $10 billion, emerging from the bankruptcy leaner and more nimble and able to repay its remaining obligations. Put in this perspective, $75 million is practically a drop in the bucket, representing only 0.004 percent of the company’s existing debt.


Second, the company has said that it needs to do the renovation to improve dated rooms. The tower that is slated for renovation contains 567 rooms and has been closed to new reservations for nearly a month. The rooms were last updated in 2001 and are said to be in desperate need of some touch ups. The renovation will result in an additional 20 rooms and will be priced at $20 or $30 more per night than the unrenovated rooms. Given this, experts say that even creditors would agree spending the money makes sense, as it may ultimately lead to a better and more financially successful company down the road.


So how might this apply in the context of a personal bankruptcy, such as a Chapter 13 filing? It’s actually quite relevant, as individuals interested in obtaining new credit while under a Chapter 13 bankruptcy repayment plan would have to clear similar hurdles. In the context of a Chapter 13 plan, courts will permit you to incur new debts for personal or family purposes if doing so is required to continue making payments under your existing plan. This means that if you can show the new debt is necessary to continue earning an income (such as a car to get to work), then the court will likely approve, as creditors will ultimately benefit from such a decision.


To obtain permission for incurring new debt, you will need to jump through some hoops. First, you’ll have to obtain financing and get documentation to show your trustee and other creditors. Then you will fill out some paperwork as part of your Chapter 13 plan, explaining the need for the new debt and how it will impact the current arrangements. Next, you can file a motion asking for the court’s permission to take on the new debt and send the motion to your creditors and any other interested parties. If no one objects, you will then be able to sign up for the new loan.


It goes without saying that the likelihood of an objection increases dramatically if the credit you are asking to obtain is frivolous or if the purchase could be deemed extravagant. It’s one thing to need a car to get to work, it’s another to say you that only a Porsche could do the job. Expect the trustee to be very skeptical of new credit, especially if the justification is flimsy.


In some limited circumstances a person under a Chapter 13 bankruptcy repayment plan can incur new debt without first receiving the court’s permission. This happens in cases involving tax liabilities (which can’t be foreseen or approved) or debts that you don’t want to be part of the repayment plan. You can also incur some small debts without asking permission, such as small bills from a doctor or mechanic. This flexibility should make the process easier by not requiring permission from the court every time an expense arises.


If you find yourself needing the services of a Charlotte, North Carolina bankruptcy attorney, please call the skilled lawyers at Arnold & Smith, PLLC find additional resources here. As professionals who are experienced at handling all kinds of bankruptcy matters, our attorneys will provide you with the best advice for your particular situation.



About the Author

Kyle Frost Bankruptcy Lawyer Student loan attorneyKyle Frost joined Arnold & Smith, PLLC in 2013 where he focuses his practice on all aspects of civil litigation and bankruptcy, including: Chapter 7, Chapter 11, Chapter 13, home loan modifications and landlord-tenant issues.

Born and raised in upstate New York, Mr. Frost attended the University at Albany on a Presidential Scholarship, graduating magna cum laude with a double major in Political Science and Sociology.  He went on to attended Wake Forest University School of Law in Winston Salem, North Carolina.

Following college, Mr. Frost spent over a year teaching English in South Korea. He worked in a private school in Seoul developing curriculum, English programs, and educating both children and adults that were interested in learning a new language.

In his spare time, Mr. Frost enjoys homebrewing, fishing, and travelling.







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