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Chapter 13 Bankruptcy's Co-Debtor Stay

Most people are not aware that when they file a Chapter 13 bankruptcy, the "co-debtor stay" goes into effect. Similar to the automatic stay that protects a debtor from collection efforts while the bankruptcy case is pending, the co-debtor stay protects a debtor's co-signors. In other words, the co-debtor stay prevents debt collection efforts against your co-debtor during your Chapter 13 case.

The co-debtor stay is established pursuant to 11 U.S.C. §1301.  In order for the co-debtor stay to apply, the following must occur:

  1. The primary debtor files for Chapter 13 bankruptcy.
  2. The debt is a consumer debt which was incurred for personal, family, or household use.
  3. The co-debtor is an individual.
  4. The co-debtor must not become liable on the debt in the ordinary course of business. To qualify for the ordinary course of business, the debt must be incurred by the debtor in the normal course of business between the debtor and transferee and made according to ordinary course business terms. In short, the debtor has the burden to prove that the payment was made according to the parties' ordinary course of business affairs.
  5. The Chapter 13 case must not have been closed, dismissed, or converted to a Chapter 7 or Chapter 11 case.

If these 5 criteria are met, the co-debtor stay will remain in effect for the duration of the Chapter 13 plan. Below are a few important factors to be aware of regarding the co-debtor stay:

·         The co-debtor stay is not available in a Chapter 7 filing.

·         Your co-debtor's liability for the debt is not altered or discharged in your bankruptcy.

·         If the debt was incurred in the "ordinary cours of business" by the debtor and co-debtor, the stay does not prevent collection of the debt.

·         A tax debt that is not considered a consumer debt is collectible.

 If you are interested in filing a Chapter 13 bankruptcy or learning more about the co-debtor stay, contact Levitt & Slafkes, PC.

If you are interested in learning how filing a bankruptcy case can benefit you, contact Levitt & Slafkes, PC, at 973-323-2953. You can also reach us by filling out our online form. We represent debtors in Chapter 7, Chapter 13 and Chapter 11 filings. Let us help you get the fresh financial start you need today.


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