Once a Chapter 13 Bankruptcy is filed, the automatic stay under Bankruptcy Code Section 362 prevents any acts by a creditor to collect a debt owed by the debtor. Read more about the automatic stay...
Few people, however, realize that Chapter 13 protects not only the debtor on a debt but also a co-debtor. This is called the "co-debtor stay." The co-debtor is specified in Section 1301 of the Bankruptcy Code. This means that a creditor is prevented, once a debtor files for Chapter 13, from pursing collection against any co-debtor who may have sponsored a consumer debt with the original debtor. Specifically, this creditor is prevented from commencing or continuing any civil action or otherwise collecting all or any part of the debt from an individual that is liable on such debt with the debtor.
The co-debtor stay will remain in effect during the pendency of the Chapter 13 proceeding unless application is made by the creditor for relief from stay. As one ground for granting relief to a creditor, the court may grant relief from the co-debtor stay if the debtor's Chapter 13 Plan proposes not to pay the creditor's claim.
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