You can get a co-debtor stay through bankruptcy

A chapter 13 bankruptcy filing often contains several advantages over a conventional chapter 7 case, one of which can be the use of the “co-debtor stay” that chapter 13 allows.

First, a bit of legal jargon. Filing any bankruptcy case creates an “automatic stay” concerning collection efforts against the debtor. It is this provision that prevents creditors from calling, mailing, suing or otherwise harassing you while the bankruptcy case is in progress. I like to tell my clients that the term “stay” effectively means “freeze;” actions against them, including lawsuits and repossessions, are “frozen” and cannot continue without an explicit order from a bankruptcy judge. Obviously, for most folks, the existence of this automatic stay is one of the primary motivating factors for filing the case in the first place.

Chapter 13 takes this concept one step further and introduced the concept of a “co-debtor stay.” Take a married couple where only the husband has a debt problem; his wife’s credit rating is pretty much OK, except she shares two credit cards with him.

With the co-debtor stay, the husband can file alone, and take the bankruptcy hit to his credit rating, while his wife doesn’t have to file at all. Even though she is a co-debtor on two of hubby’s accounts, the co-debtor stay from her husband’s filing protects her as well, without the necessity of having both persons go through bankruptcy.
In certain situations (like this one) this can provide very powerful relief.

One limit to the co-debtor stay is that it applies only to consumer debts. So probably not to back taxes, child support payments and the like. With entrepreneurs, sticky problems sometimes arise in classifying debt as “business” or “consumer” but beyond those tricky issues, the co-debtor stay may be something to keep in mind if you are contemplating bankruptcy.

 

By Doug Beaton

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