Simon PLC Attorneys & Counselors – November 2019 Memorandum
Chapter 13 Bankruptcy Co-Debtor Stay
Bloomfield Hills, Michigan – Creditors are all generally familiar with the automatic stay provided for under the bankruptcy code. The automatic stay requires that all efforts to collect debts from the debtor and property of the estate must immediately cease upon the filing of a bankruptcy case by the debtor. But what about someone who is jointly obligated with the debtor, who did not themselves file bankruptcy? Is this non-filing co-borrower also entitled to the protections of the bankruptcy stay?
Yes – if the bankruptcy case is filed under Chapter 13 and the subject debt is of a consumer nature, the Co-Debtor Stay prohibits collection actions against a co-borrower during the pendency of the case. Thus a co-borrower enjoys the same protections as the primary debtor under Chapter 13, even though he or she did not file bankruptcy.
When a consumer files for Chapter 13 bankruptcy relief, the stay also protects any other individuals who are jointly obligated on the debt, even if such co-borrower did not file for bankruptcy relief. 11 U.S.C. §1301(a). Say, for example, a husband files for Chapter 13 protection and the wife does not; the husband scheduled a credit card debt that they both signed for – the Co-Debtor Stay protects both of them from the creditor’s collection efforts — even though the wife did not file.
It should be noted that the Co-Debtor Stay applies irrespective of the relationship between the debtor and the non-filing co-borrower – it is not necessary for them to be married, family members or otherwise related for the protections to apply. It is also important to note that the Co-Debtor Stay only applies to Chapter 13 cases and does not arise under Chapter 7. Finally, the Co-Debtor Stay also applies only to “consumer debts” such as credit card accounts, car loans, mortgages, and medical bills and does not extend to business or commercial obligations.
What can be done? The Bankruptcy Code provides a mechanism for creditors to obtain relief from the Co-Debtor Stay. An affected creditor can motion for termination of the Co-Debtor Stay, to the extent the debtor’s proposed plan does not make provision for the payment of the subject debt, by showing that the non-filing co-borrower benefitted from the subject indebtedness and/or that the creditor’s interest is subject to irreparable harm as a result of the Co-Debtor Stay. 11 U.S.C. §1301(c), (d). In addition, the non-filing co-borrower will not share in the debtor’s discharge and collection actions against the co-borrower may resume upon the conclusion of the case, subject to any applicable statute of limitations.
The Collections Team at Simon PLC Attorneys & Counselors is well-versed in the impact of a bankruptcy filing upon the collection of your debt. We can offer strategies and solutions to maximize recovery, including preparing the necessary filings to obtain relief from the Co-Debtor Stay to enable collection activity against a non-filing co-borrower to continue in stride.
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