Bankruptcy Co-Debtor Stay in New York City

Normally speaking, if you have a co-signer on a home loan or credit card then both of you are responsible for paying the debt.  Many times however, only one of the liable signers will file bankruptcy.  The person filing is protected from their creditors by bankruptcy’s “automatic stay” provision prevent any and all collection attempts against them.  Filing Chapter 13 bankruptcy will extend the automatic stay to your co-debtors affording them the same protection against the creditors with whom you share a debt.  The co-debtor stay offers some protection but can be terminated in some cases in New York City.  Speak to your qualified bankruptcy attorney about any debts you may share with another signer.

There is no co-debtor stay for either Chapter 7 or Chapter 11 cases, it is a provision outlined only in Chapter 13 of the US Bankruptcy Code.  The basic idea behind the co-debtor stay is to prevent your creditors from harassing you indirectly by going after your co-debtors who are most often spouses, other family members, or friends.  The law realizes you would be given little relief if the collection attempts could simply be passed to your loved ones on the account.  In fact many people would not even file bankruptcy if this was the case.  So if you file a Chapter 13, the creditor cannot go after your co-debtors for the duration of your case.   Doing so is against the law, and if they attempt to collect against your co-debtor your attorney may even advise a lawsuit against the offending creditor as well.

Your creditors are not prevented from going after co-debtors forever.  After your Chapter 13 case is concluded, 3-5 years, they can resume collection efforts against your co-debtor.  Creditors can also file a “Motion for Relief from the Co-Debtor Stay” to terminate the co-debtor stay in a few specific situations.  First, a co-debtor stay could potentially be terminated if the non filing debtor received the actual benefit from the account or from the debt.  The co-debtor stay could also be lifted if the filing co-debtor’s Chapter 13 plan does not propose to pay 100% of the creditor’s claim.  And finally, the co-debtor stay could be terminated (lifted) if the creditor would be “irreparably harmed” by the continuation of the co-debtor stay.  Once a creditor files the motion to have the co-debtor stay lifted a hearing will be scheduled to determine if the stay should stay in effect.  If the Chapter 13 repayment plan does not propose to repay 100% of the creditor’s claim then the co-debtor stay may be partially lifted unless the debtor or co-debtor objects.  Practically speaking, a “Motion for Relief from the Co-Debtor Stay” usually involves proving which debtor is actually liable for the debt on the account, and whether or not the creditor actually has a claim against the co-debtor in the first place.  A creditor will need to show documentation establishing the co-debtor’s liability, which in some recent home loan cases has been difficult for the creditor to provide.

If you need to protect a co-debtor, or just have questions about who may be actually liable for a shared debt then speak to a qualified bankruptcy attorney about you co-debtor situation right away.  Bankruptcy has pros and cons, but our clients are always relieved of their shared debts and keep their valuable possessions in the process.  If you live in New York City get the facts for yourself and contact the Law Offices of William Waldner online or at 212.244.2882 to arrange a free bankruptcy consultation today.  We only practice bankruptcy law and maintain a 99% Chapter 7 bankruptcy discharge record in New York City as of 8/31/16, and are right in Midtown.

**** DISCLAIMER: This article is intended for educational purposes only. By reading no attorney-client relationship has been created. Prior results do not guarantee a similar result for future clients.