When you file a Chapter 13 bankruptcy case, you are given the benefit of the automatic stay and the “co-debtor stay.” The automatic stay prohibits creditors from taking collection efforts against you. The co-debtor stay prohibits collection efforts against the family members, friends or others who co-signed loans with you while your Chapter 13 case is pending. It is important to understand, however, that your bankruptcy filing does not alter or discharge the co-debtor’s financial obligations under the terms of the loan. Also, a Chapter 7 filing does not have a co-debtor stay.
There are some exceptions to the general application of the co-debtor stay. For example, the stay doesn’t prohibit collection against a co-debtor on a debt which was incurred in the “ordinary course of business” by the debtor. Additionally, a tax debt is generally not considered a consumer debt, so it can be collected.
The co-debtor stay is established under 11 U.S.C. §1301. In order for the co-debtor stay to apply, the following must occur:
- The primary debtor files for Chapter 13 bankruptcy.
- The debt is a consumer debt (incurred for personal, family, or household use).
- The co-debtor is an individual.
- The co-debtor must not become liable on the debt in the ordinary course of business.
- The Chapter 13 case must not have been closed, dismissed, or converted to a Chapter 7 or Chapter 11 case.
If these five criteria are met, the co-debtor stay will remain in effect for the duration of the Chapter 13 plan. A knowledgeable bankruptcy lawyer can help you determine if these five criteria are met in your case.
If you are planning to file a Chapter 13 case or you have questions regarding the co-debtor stay, contact the legal team at DeLadurantey Law Office, LLC to schedule your initial consultation.
Contact The “Milwaukee Bankruptcy Attorneys,” DeLadurantey Law Office. LLC. DeLadurantey Law Office focuses on Chapter 7 and 13 bankruptcy, debtor’s rights, debt negotiations, debt relief, mortgage loan modifications, and foreclosure defense. A “defender of the little guy, “DeLadurantey Law Office serves the following location – Milwaukee, South Milwaukee, West Milwaukee, Waukesha City, Waukesha Town, Kenosha, Racine, and all other municipalities in Milwaukee County, Waukesha County, Kenosha County, and Racine County. We can be contacted by phone: (414) 377-0518 and can be found on the Internet and on Facebook.