Protecting Your Co-Debtors with Chapter 13

Understanding the Automatic Stay when Filing for Bankruptcy

As soon as your bankruptcy case is filed, the automatic stay takes effect. The purpose of the automatic stay is simply to protect you from creditors still trying to collect debts. All bankruptcy cases, including Chapter 7 and Chapter 13, have an automatic stay.

As you may have guessed, an automatic stay is one of the most valuable reasons to file a bankruptcy case. However, it will probably only protect you- the person filing bankruptcy and your assets. Anyone else who may be legally involved with your debts is still entirely vulnerable to the collection of creditors.


Understanding the Bankruptcy Co-Debtor Stay

Chapter 13 bankruptcy case makes it clear that the well-being of those with legal liability is important. That is why in the first section a Chapter 13 case discusses the automatic stay and the co-debtor stay. This stay is only applicable with a Chapter 13 bankruptcy case, and protects your co-signers, also known as co-debtors.

This first section makes it clear that creditors can no longer take actions to collect debts from anyone legally liable, including the debtor and the co-debtors. With a consumer debt, the creditor is already not allowed to try to collect debts from the debtor thanks to the automatic stay. However, a Chapter 13 allows the unique protection of any co-signers or individuals that could legally be held liable for a consumer debt.


Protecting the People You Care About

When you consider the co-debtor stay, you realize that it is a unique and important protection. While your co-signer is unrelated your actual bankruptcy case, they are still legally liable for some of your debt. Co-debtors are also likely people you care greatly about and you have probably established trust with them. This stay allows you to protect that person from this liability, potentially without them even knowing.


Knowing the Limits of a Co-Debtor Stay

The protection offered by a co-debtor stay is only applicable to consumer debts, not business debts. It also has a few other limitation and conditions to consider, including:


  1. Spouses are still liable to joint liability or income taxes because they are not considered consumer debts.
  2. Individuals who garnered liability in an ordinary interaction through or with their business is still liable to debts.
  3. Permission to try and attain the debt from a co-debtor can be granted to a creditor in the case that:
  • The co-signer was the beneficiary of the loan or what the creditor had provided.
  • The Chapter 13 plan will not pay the claim discussed.
  1. As soon as the Chapter 13 case is completed, dismissed or changed to a Chapter 7, the creditor can pursue a co-debtor without requesting the above permissions.


The Bankruptcy Bottom Line

The choice between filing for Chapter 7 bankruptcy  and a Chapter 13 bankruptcy is not always an easy one. However, if protecting someone liable on your debt is a priority, then a Chapter 13 is an option to give a great deal of consideration.

A bankruptcy attorney can help you make the right decision between filing a Chapter 7 and a Chapter 13 case. If you are in need of a bankruptcy attorney in the Lafayette, Indiana area, contact the Law Offices of Brad A. Woolley today.