Automatic Stay For Co-Debtors In Bankruptcy

When a person files bankruptcy an automatic stay goes into affect by law. This means that a creditor cannot take any action to collect a debt against the individual in bankruptcy. The creditor may not take the debtor to court, garnish his wages, send letter demanding payment, or make collection calls on the phone. The automatic stay though does not generally apply to a co-debtor. Thus when a married couple is jointly liable on most of their debts, it seldom does much good for one of the spouses to file a bankruptcy alone. The creditors will merely go after the spouse, who did not file bankruptcy.

There is a limited automatic stay for co-debtors in a Chapter 13 bankruptcy . The automatic stay will apply to consumer debts signed by a co-debtor in a Chapter 13 bankruptcy and prevent the creditors from going after the debtor’s spouse or other co-debtor. There are several exceptions to this rule though that waters down the protection it supplies. Probably the biggest exception allows the creditor to have the automatic stay lifted, if the bankruptcy plan does not call for paying 100% of the debt. Since most Chapter 13 bankruptcy plans call for paying less than 100% of the debts, this exception will frequently apply.