Co-debtor Stay Law and Legal Definition
The “Co-Debtor Stay,” also known as the “Co-Debtor Automatic Stay,” is a feature of a Chapter 13 Bankruptcy. The policy behind the co-debtor stay in Chapter 13 is to prevent creditors from placing indirect pressure on the debtor by continuing collection activities against co-debtors, who are usually the debtor’s spouse, family members or friends. The Co-Debtor Stay stops all collection actions against any individual who is obligated on a consumer debt owed by the debtor. The Co-Debtor Stay continues until the Chapter 13 case has concluded.
Creditors can file a Motion for Relief from the Co-debtor Stay and ask the Court to terminate the Stay under any one of three appropriate circumstances.
First, under section 1301(c)(1) of the Bankruptcy Code, the co-debtor stay can be lifted if, as between the two parties on the account, the Co-debtor actually received the benefit from the account or debt.
Second, pursuant to section 1301(c)(2), the stay must be lifted if the debtor’s Chapter 13 Plan does not propose to pay 100 percent of the creditor’s claim.
Finally, under section 1301(c)(3), the stay must be lifted if the creditor would be irreparably harmed by continuation of the co-debtor stay.
