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Chapter 13 Stay Protects Co-Debtors

August 2, 2010

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. Free Consultation 

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.  Free Consultation 

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). Free Consultation 

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. Free Consultation 

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. Free Consultation


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