Indirect lending and collections are having a debate. Indirect guy is positive that it's prohibited to seek new credit or for a lender to extend new credit to someone that's in the middle of a bankruptcy proceeding.

Collections disagrees and doesn't think it's a requirement, just that you're dumb if you do it.

Any opinions? I've been called upon to decide who's right.

I don't have a legal citation, but I know we used to have an officer who did so and we were able to perfect somehow (before my time in compliance).

I can't believe it's illegal, since it happened in the past, but you're an abject fool, in my opinion, to do so.

I'd totally agree that it'd be ridiculous to do so, yep!

I haven't looked at bankruptcy rules for a long time but at one time I recall the bankruptcy court prohibited any new credit during the proceedings (after filing and prior to discharge) not approved by the court. Any such credit could be construed as fraud and subject the bankruptcy to dismissal by the court.

You need to be having this discussion with your bank's attorney.

Thankfully the indirect app that brought it up was tied to someone that in no way would ever earn a loan from us, so we don't need to be worried about it today, but yes it would be something to know for future use.

Some searching with state law indicates that it likely is still prohibited, with ch 13 specifically, but I've not seen anything on 7 yet.