Chapter 13 Co-Debtor Stay
The “Co-Debtor Stay,” also known as the “Co-Debtor Automatic Stay,” is a feature of a Chapter 13 Bankruptcy designed to protect a debtor by insulating him from indirect pressures from his creditors exerted through friends or relatives. The Co-Debtor Stay stops all collection actions against any individual who is obligated on a consumer debt owed by the debtor. The Co-Debtor Stay continues until the Chapter 13 case has concluded.
The Co-Debtor Stay is not a direct protection intended for the co-debtor. The debtor’s Chapter 13 Bankruptcy will not discharge the co-debtor’s responsibilities to the creditor. It will, however, prevent collection action by the creditor against the co-debtor (e.g. lien perfection or even adverse notation on the co-debtor’s credit report) during the pendency of the Chapter 13 case.
The Co-Debtor Stay does not prohibit collection on a debt incurred in the ordinary course of business by the debtor. Additionally, tax debt is generally not considered a consumer debt. It is important to note that the Co-Debtor Stay does not apply at all to Chapter 7 Bankruptcy cases.
The Co-Debtor Stay is effective immediately upon the filing of the debtor’s Chapter 13 petition and continues until the case is closed, dismissed, or converted to Chapter 7 or 11. The Bankruptcy Court can also modify or terminate the Co-Debtor Stay upon the motion of a creditor. The creditor may be successful in this type of motion if the codebtor received “consideration” for the debt (e.g. you cosigned a car loan for your brother, who actually owns the car), if the debtor’s Chapter 13 plan proposes to not pay the debt, or if the creditor’s interests would be irreparably harmed by continuation of the Co-Debtor Stay.
A knowing violation of the Co-Debtor Stay is contempt of court and punishable by damages, including attorney’s fees. Any collection action taken by a creditor in violation of the co-debtor stay is void.
The Co-Debtor Stay is a powerful tool to prevent collection action in Chapter 13 Bankruptcy. If you are contemplating a bankruptcy filing and have co-debtors, consult with an experienced bankruptcy attorney. An experienced bankruptcy attorney can explain your options and work with you to find the best result.
Chapter 13 Stay Protects Co-Debtors
One of the most beneficial aspects of a Chapter 13 bankruptcy is the Co-Debtor Stay. This protection is designed to insulate the debtor from indirect creditor pressure through friends or relatives. The Co-Debtor Stay prohibits collection actions against an individual who has a joint consumer obligated with the debtor in bankruptcy. The Co-Debtor Stay starts automatically when the Chapter 13 bankruptcy case is filed and continues until the case is closed, dismissed, or converted to Chapter 7 or 11.
The Co-Debtor Stay is intended to protect the bankruptcy debtor, not the co-debtor. The Co-Debtor Stay does not eliminate the co-debtor’s legal obligation to pay the debt. However, the Co-Debtor Stay prevents collection action by the creditor against the co-debtor during the pendency of the Chapter 13 case.
There are some limitations to the Co-Debtor Stay. The Co-Debtor Stay is only available in a Chapter 13 case, and does not apply in Chapter 7 or 11 cases. The Co-Debtor Stay does not prohibit collection action on business debts. Finally, a joint obligation on a tax debt is generally not considered a consumer debt.
The Co-Debtor Stay can also be modified or terminated by the bankruptcy court. A creditor may be successful in terminating the Co-Debtor Stay if your bankruptcy plan proposes to not pay the debt, if the creditor’s interests would be irreparably harmed by continuation of the Co-Debtor Stay, or if the co-debtor received “consideration” for the debt (e.g. you cosigned a car loan for a relative, who actually owns the car).
If a creditor knowingly violated the Co-Debtor Stay, the bankruptcy court may find the creditor in contempt of court and impose a fine and award damages, including attorney’s fees. Any collection action taken by a creditor in violation of the Co-Debtor Stay is void.
If you have joint debts and are considering bankruptcy, speak to an experienced attorney and discover the benefits and protections of a Chapter 13 bankruptcy. A Chapter 13 bankruptcy case can stop collection action against you and your co-debtors, and give you time to repay or eliminate your debts. An experienced bankruptcy attorney can help you analyze your financial situation and choose the best strategy for resolving your debt problems.