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How to Protect a Co-Signor in Your Bankruptcy


If you are planning to file for bankruptcy and you have a loan (or several loans) with co-signors, you may be worried how your filing will impact the loved one who helped you obtain the loan. There is no protection for a co-borrower if you file a Chapter 7 case, but a Chapter 13 filing provides the “co-debtor stay.”

The co-debtor stay is similar to the automatic stay that protects you (the debtor) from collection efforts by creditors. As long as your Chapter 13 case is pending, the co-debtor stay protects your family member, friend or other who co-signed your loans from collection efforts by the creditor. However, your bankruptcy filing does not change or discharge the co-debtor’s financial obligations under the loan.

 You should understand that there are some exceptions to the application of the co-debtor stay. For instance, the co-debtor stay does not stop collection activity against a co-signor on a loan that was incurred in the “ordinary court of business” by you. In most cases a tax debt is not considered a consumer debt, so it is also collectible.

Section 1301 of the Bankruptcy Code establishes the co-debtor stay.

There Are Five Factors That Must Exist for the Co-debtor Stay to Apply.

They are:

  1. You, the primary debtor, have filed a Chapter 13 bankruptcy case.
  2. The debt at issue is a consumer debt, which means it was incurred for personal, family, or household use.
  3. The co-debtor is an individual (not a business).
  4. The debt was not incurred in the ordinary course of business.
  5. The Chapter 13 case was not closed, dismissed, or converted to a Chapter 7 or Chapter 11 case.

If the above factors have been met, the co-debtor stay is effective throughout the entire term of the Chapter 13 case. An experienced bankruptcy attorney can review your individual circumstances and help you understand if the above factors have been met.

If you are considering filing a bankruptcy and you need help determining which type of filing would be best for you, contact Fitzgerald & Campbell to schedule an appointment. We do not offer just one debt relief option, we don’t push you in one direction. If bankruptcy right for you, we will tell you. If it’s not, we will tell you that. If bankruptcy is your get out of debt plan, it needs to be done right. It needs to be in the hands of experienced lawyers who have been there before. Contact us today!

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