Maryland Bankruptcy Attorney – Chapter 13 Co-Debtor Stay

My name is Joseph K. Githuku, I’m an attorney practicing bankruptcy and consumer rights in Maryland.

What is a Co-Debtor in bankruptcy.

A co-debtor is any one or party who along with another individual voluntarily or involuntarily becomes liable a to pay a debt or satisfy an obligation. The most common co-debtor situations arise out of individuals cosigning loans on behalf of family, friends and business associates. By the way you should evaluate requests to co-sign car loans etc just a like a bank would. Family and friends who a bad credit risk could ruin your credit.

Debt or an obligation to pay can also arise out of a tort action such as car accident or medical malpractice claim. If you rear end someone and he or she suffers injuries as well as property damage to their vehicle you may be liable for those damages.

Co-Debtor Stay in Chapter 13 Bankruptcy

A chapter 13 bankruptcy offers some of the best protection available for co-debtors. Once one or more co-debtor’s file a chapter 13 petition, the non-filing co-debtor enjoys the same protections of the automatic stay as though he or she had filed. The co-debtor stay means that creditors cannot pursue the non-filing party while the chapter 13 case is pending.

The co-debtor stay is not available in chapter 7 cases. A chapter 7 bankruptcy is also known as a liquidation and debtors are looking to discharge debt without payment to creditors. This means that creditors can still pursue collection activity against the non-filing co-debtor in a chapter 7 scenario.

In addition to bankruptcy, I work with parties going through separation and divorce and there are often co-debtor issues galore. It stands to reason that married couples will incur joint debts such as car loan, mortgages, medical bills and credit cards. As part of a separation agreement or divorce hearing the parties will apportion the debt among themselves. Before long one party will chose to file bankruptcy which can leave the non-filing former spouse in a bit of a pickle.

While a former spouse can agree as part of the divorce to pay off certain debts such an agreement does not alter the original loan contract obligating both spouses. As a result, creditors are free to ignore such agreements and enforce the original contract against all the parties who agreed to pay the debt. This can result in financial hardship for the non-filing spouse and may force that spouse to file bankruptcy as well.

In conclusion, a co-debtor is any party who is obligated to pay a debt and that party enjoys the protections of automatic stay if one or more co-debtor files for chapter 13 protection.

My name is Joseph K. Githuku. I’m an attorney practicing bankruptcy and consumer rights. Call me at 410-849-9529 if you have a question or need my assistance.