Most are familiar with the automatic stay of 11 U.S.C. 362(a) that goes into effect upon the filing of a bankruptcy petition. But, what about the co-debtor stay of 11 U.S.C. 1301 that is imposed in Chapter 13 cases to protect friends, relatives and others who co-signed or are otherwise obligated for debts incurred by the debtor? A co-debtor stay can bar the commencement of a foreclosure action even in cases where the automatic stay does not go into effect due to multiple case dismissals in a 1 year period before the latest petition filed by a debtor. The co-debtor may not even be aware there is a pending bankruptcy case, but their protection works to protect the filing debtor.
Another, perhaps inadvertent, protection provided by the co-debtor stay comes into play once a debtor obtains a Chapter 13 discharge. Upon discharge, the automatic stay is terminated as to the debtor, but the co-debtor stay can linger on until the case is closed, dismissed, or converted to another chapter under the bankruptcy code. It is not unusual for a case to stay administratively open for quite a while after discharge. Therefore, even if there is a Chapter 13 discharge in the record, it may be necessary to stop and ask, is there a stay, or not a stay, before proceeding with foreclosure.
For more information, contact Sharon Fewell, Esq.