Tuesday, February 22, 2011

The Co-Debtor Stay.

As you know, the filing of a bankruptcy petition operates as an automatic stay against the commencement or continuation of any act to collect money or property from the debtor (more specifically, the bankruptcy estate), subject to certain exceptions.  See 11 USC 362.

In cases filed under Chapter 13, the automatic stay is extended to co-debtors.  See 11 USC 1301.  Therefore, upon the filing of a Chapter 13 petition, creditors are prohibited from attempting to enforce their rights against other people who did not file bankruptcy, but who are jointly liable with the debtor on a particular debt. 

It is worth noting, however, that the co-debtor stay only applies to consumer debts of the debtor. Consumer debts are defined in Section 101 as those debts incurred by an individual primarily for a personal, family, or household purpose.  There are tons of cases dealing with this issue.  Err on the side of caution, but if the debt is clearly not personal in nature, the creditor may proceed against the co-debtor.

Also, even if it is a consumer debt, the co-debtor stay does not apply if the co-debtor became liable on the debt in the ordinary course of the co-debtor's business.  See Section 1301(a)(1). 

So, there are two considerations.  For the co-debtor stay to apply, the original debt must be consumer in nature and the co-debtor's obligations must not have occurred in the normal course of business.  If one of these factors does not apply, neither will the co-debtor stay.  

4 comments:

Amarant said...

"Consumer debts are defined in Section 101 as those debts incurred by an individual primarily for a personal, family, or household purpose." Are payday loans considered consumer debts? Do such loans apply in the co-debtor procedures?

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bad credit car loans said...

Good question Amarant. I'm not well-versed in the legal aspects of loans and was wondering about the same thing when I finished reading the article. I'll get back to you as soon as I finish talking with my lawyer friend.

Hillary Felt said...

The burden of proof still relies on the ability of the defendant to prove that their expenses have been personal and used around the house. Good thing my loan modification attorney knows what he's informing me during consultations.

Muhammad Amir said...

There are tons of cases dealing with this issue. Err on the side of caution, family lawyers