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Co-Debtor in a Chapter 13

When a debtor files a Chapter 13 case, section 1301 0f the United States Bankruptcy Code bars (or stays) creditors from collecting “consumer debt” from a non-bankrupt individual who is responsible for that debt along with the debtor. Generally, the stay is in effect until the case is closed, dismissed or is converted into a Chapter 7 or 11. This means that although a co-debtor will enjoy the benefits of Chapter 13 bankruptcy protection during the life of the bankruptcy, the co-debtor is not entitled to a bankruptcy discharge enjoyed by the bankrupt co-debtor.

Although section 1301 refers to consumer debt, which usually describes debt incurred by an individual and not a business, the definition of “consumer debt” for section 1301 purposes has a different meaning.

Defining Consumer Debt

The Bankruptcy Code defines consumer debt as “debt incurred by an individual primarily for a personal, family, or household purpose.” Debt incurred to pay for a family home is clearly consumer debt, so a non-bankrupt debtor whose spouse filed Chapter 13 would enjoy Chapter 13 co-debtor protection. On the other hand, income tax debt is not considered consumer debt for 1301 purposes because such debt is not voluntarily incurred; it is government imposed.

If the debt was used to start a business or pay for college or job training, such debt would not be consumer debt under 1301. Commonly, a husband will file for Chapter 13 bankruptcy protection at the time that his wife is working on building her business. Although she personally borrowed money to train for this business opportunity and is consumer in nature, it is not consumer debt for 1301.

Presenting to the Co-debtor

Although a non-bankrupt co-debtor may enjoy bankruptcy protection, it is not as absolute as the bankrupt co-debtor. The Bankruptcy Code bars Creditors of the Chapter 13 bankrupt debtor from presenting the debtor with any sort of instrument showing that debt is owed. In contrast, creditors of the non-bankrupt co-debtor may present a promissory note to the non-bankrupt co-debtor, though the creditor cannot enforce payment.

Irreparable Harm Exception

Although creditors are generally stayed from collecting on a non-bankrupt co-debtor’s debt, there are exceptions. One exception that allows the co-debtor stay to be lifted is when the stay may irreparably harm a creditor’s interest. If a creditor demonstrates a likelihood of non-bankrupt co-debtor default or that the collateral securing repayment is deteriorating then that can constitute irreparable harm.

Usually, demonstrating that the co-debtor stay may lead to delay of payment to the creditor is insufficient lift the stay on irreparable harm grounds However, if the co-debtor is leaving the jurisdiction or transferring assets then a court may grant relief to the creditor.

Bankruptcy Plan does not propose to pay the Creditor

Another execption to the co-debtor stay occurs when the plan does not propose the pay the creditor’s claim. During a Chapter 13 proceeding, the debtor filing for bankruptcy proposes a plan to pay off some or all of the creditors. To affect the bankruptcy, a bankruptcy Judge must approve the plan. If the plan is approved without payment for the debt involving the co-debtor, the co-debtor’s stay may be lifted.

Even if the plan addresses the debt relevant to the co-debtor but does not propose full repayment of that debt then the creditor can lift the co-debtor’s stay in regard to the amount not covered by the plan. Therefore, married couples or others who are co-debtors should consider the scope and ramifications of the co-debtor stay when compiling the Chapter 13 plan.


When seeking to lift a co-debtor stay, a creditor is required to submit a written motion requesting a hearing. Upon serving the co-debtor with the lift-stay motion, the co-debtor has twenty days to respond by filing an objection motion, which would followed by a hearing. At the hearing, the creditor bears the burden of proof why the stay should be lifted. If the co-debtor fails to file a written objection within twenty days, the co-debtor stay will be automatically lifted.

If you are considering bankruptcy and share debt with a co-debtor, Chapter 13 bankruptcy can provide some relief for both of you. A possible solution is for the bankrupt debtor to propose a plan that provides for preferential repayment of cosigned debt. However, California courts may strike down such a plan as discriminatory in favor of some creditors over others. This issue is complex and requires a competent lawyer well versed in Chapter 13 co-debtor stays. For further information, speak to the experience consumer bankruptcy lawyers at the Law Office of Melanie Tavare. Call or email her today!


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