LAWDOG BANKRUPTCY: CHAPTER 13
Co-Debtor & Personal Guarantee
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Co-Debtor Stay
Relief From Co-Debtor Stay
Co-Debtor
Stay
A debt may be jointly owed by two co-debtors. Other debts may be guaranteed by a third
party. Where a Bankruptcy petition has been filed by only one of the co-debtors, a
creditor generally may be permitted to pursue payment from the non-bankrupt co-debtor.
Also, where a personal guarantor is not the debtor in bankruptcy, the automatic stay
provisions may not prohibit a creditor from pursuing payment from the non-bankrupt
personal guarantor. However, a special "co-debtor" stay provision may apply to a
consumer debt where the debtor has filed a Chapter 13 Bankruptcy.
Section 1301 of the Bankruptcy Code provides that in a bankruptcy for individuals
filed under Chapter 13, a creditor may NOT pursue
against a co-debtor or a personal guarantor, not in bankruptcy, if the debt is a
"consumer debt". Under Section 101 (8)
''consumer debt'' means debt
incurred by an individual primarily for a personal, family, or household purposes. See
Section 1301(a) of the Bankruptcy Code reproduced here
for illustration purposes only.
This rule does not apply where the case is
closed, dismissed, or converted to a case under chapter 7 or 11, or where such individual
became liable on or secured such debt in the ordinary course of such individual's
business.
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Relief From
Co-Debtor Stay
On request of a party in interest and after notice and a hearing, the court shall
grant relief from the stay with respect to a creditor, to the extent that the co-debtor or
guarantor received the consideration for the claim, the plan filed by the debtor proposes
not to pay such claim; or such creditor's interest would be irreparably harmed by
continuation of such stay.
Where a motion for relief from co-debtor stay is based upon the fact that the plan
filed by the debtor proposes not to pay such claim, the stay automatically terminates
twenty days later as to the party 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. See Section 1301(c) reproduced here for illustration purposes only.
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