The Codebtor Stay In Chapter 13

What happens when there is more than one person responsible for the payment of a debt, but only one of those persons files for bankruptcy? It’s the codebotor’s stay to the rescue. Section 1301 of the Bankruptcy Code protects “any individual that is liable on [the] debt with the debtor.” The Codebtor stay generally protects all individuals who are codebtors of the debtor who are normally relatives or friends of the debtor. The availability of the Codebtor stay may make it unnecessary for a debtor’s spouse, or some other relative who has cosigned or guaranteed a debt, to file a bankruptcy case since that relative will receive protection of the stay on debts that will ultimately be paid through the debtor’s plan.

In several situations the stay is effective as of the filing of the bankruptcy case, but may be lifted or modified by the court.

There are limitations to the codebtor stay. The codebtor stay only applies to consumer debts. A consumer debt is a debt incurred by an individual primarily for personal, family or household purpose. It also may not include tort liability. Further, the codebtor stay does not apply to codebtors who became obligated in the ordinary course of business. The stay ends automatically if a Chapter 13 case is closed, dismissed, or converted to another chapter other than chapter 12.

If someone is obligated on a debt with you and you are facing financial problems, you should seek competent legal advise. Filing for chapter 13 may give you some financial relief while protecting the other person obligated on the debt from unexpected debt collection activity.