Motion to Terminate Stay as to Co-Debtor Law and Legal Definition

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.

Generally, once a Motion for Relief from Co-debtor Stay is filed, a hearing will be held to determine if the stay should be lifted or modified. However, if the Motion is filed under section 1301(c)(2), alleging that the Plan does not propose a 100 percent payment to the creditor of a co-signed debt, the stay is automatically lifted 20 days after the filing of the Motion unless the debtor or co-debtor files a written objection to the Motion.

Title 11 of US Code (11 USCS § 1301) provides for the stay of action against co debtor and reads as follows:

§ 1301. Stay of action against co debtor

(a) Except as provided in subsections (b) and (c) of this section, after the order for relief under this chapter [11 USCS §§ 1301 et seq.], a creditor may not act, or commence or continue any civil action, to collect all or any part of a consumer debt of the debtor from any individual that is liable on such debt with the debtor, or that secured such debt, unless--

(1) such individual became liable on or secured such debt in the ordinary course of such individual's business; or

(2) the case is closed, dismissed, or converted to a case under chapter 7 or 11 of this title [11 USCS §§ 701 et seq. or 1101 et seq.].

(b) A creditor may present a negotiable instrument, and may give notice of dishonor of such an instrument.

(c) On request of a party in interest and after notice and a hearing, the court shall grant relief from the stay provided by subsection (a) of this section with respect to a creditor, to the extent that-- (1) as between the debtor and the individual protected under subsection (a) of this section, such individual received the consideration for the claim held by such creditor; (2) the plan filed by the debtor proposes not to pay such claim; or (3) such creditor's interest would be irreparably harmed by continuation of such stay.

(d) Twenty days after the filing of a request under subsection (c)(2) of this section for relief from the stay provided by subsection (a) of this section, such stay is terminated with respect to the party in interest making such request, unless the debtor or any individual that is liable on such debt with the debtor files and serves upon such party in interest a written objection to the taking of the proposed action.”