One of the main benefits of filing for bankruptcy protection is the automatic stay. The automatic stay protects the debtor from continued collection efforts while the bankruptcy case is pending. When you file a Chapter 13 case, there is also a “co-debtor stay” that protects your family member, friend or other party who co-signed loans with you. The co-debtor stay is not available in a Chapter 7 filing. The co-debtor stay protects your co-borrowers from collection efforts while your Chapter 13 case is pending.
Similar to the automatic stay, the co-debtor stay does not change or discharge the financial obligations under the terms of the loan. The application of the co-debtor stay also has some limitations. For instance, the co-debtor stay does not prevent collection against a co-borrower on a debt the debtor incurred in the “ordinary course of business.” Further, tax debts are generally not considered a consumer debt, so it can be collected. According to 11 U.S.C. §1301, the co-debtor stay applies if the following factors are met:
- the debtor has filed a Chapter 13 bankruptcy case
- the applicable debt is a consumer debt incurred for personal or household use
- the co-debtor is a person
- the co-debtor did not become obligated on the debt in the ordinary course of business
- the Chapter 13 case is open and active (closed, dismissed, or converted to a Chapter 7 or Chapter 11 case)
- If the above five criteria have been met, the co-debtor stay is effective for the term of the Chapter 13 plan.
If you are considering filing for bankruptcy protection and you have loans that were co-signed by loved ones, it is important to discuss your options with an experienced attorney. You may want to consider filing a Chapter 13 case to protect your co-obligors during your bankruptcy case.
Chapter 13 bankruptcy is not an indicator of failure. In fact, it is actually a method by which you can lay the foundation for a better, brighter financial future for you and your family. Choose A Thorough California Debt Settlement Attorney with offices in Jackson and Folsom. Contact us today to schedule a comprehensive consultation.