When a debtor files a Chapter 13 bankruptcy, they are provided significant financial relief from their creditors. In a Chapter 13 bankruptcy, debtors make affordable, monthly payments towards their debts in a three to five year repayment plan. After their Chapter 13 plan is completed, debtors receive a bankruptcy discharge that wipes out their remaining debts. Immediately upon the filing of a Chapter 13 bankruptcy, debtors are protected from their creditors by the automatic stay – this prevents most creditors from taking any legal action in collecting from the debtor for unpaid debts. The automatic stay prevents creditors from calling debtors, sending bills, filing a lawsuit against them, and it also prevents creditors from enforcing court judgments against debtors (i.e. by garnishing their wages or levying their bank accounts).
Often, a debtor filing for bankruptcy will have co-debtors. For instance, a debtor may have another family member co-sign for a personal loan or be a joint credit card account holder. These co-debtors are also legally responsible for repaying these debts. Thus, a creditor may take the same actions and collect upon the debts against that co-debtor, as they would against the debtor. In a Chapter 7 bankruptcy, only debtors are protected by the automatic stay. However, in a Chapter 13 bankruptcy, co-debtors are also protected from the debtor’s creditors, while the debtor is in their Chapter 13 bankruptcy.
There are exceptions to this protection for co-debtors in a debtor’s Chapter 13 bankruptcy. The IRS or the State of Minnesota can still pursue a joint tax debt against a co-debtor while the debtor is in a Chapter 13 bankruptcy. Moreover, the co-debtor will not be protected by the automatic stay if the debt was incurred by the co-debtor in the ordinary course of the co-debtor’s business. If the debtor’s Chapter 13 bankruptcy is closed, dismissed, or converted to a Chapter 7 bankruptcy, the co-debtor will also lose their protection against creditors by the automatic stay, as well. In summary, a co-debtor who has joint debts with a debtor filing a Chapter 13 bankruptcy, is usually protected from most types of debts while the debtor is in the Chapter 13 bankruptcy.
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To learn more about whether a person with whom you have shared debts with, will receive the protections of your Chapter 13 bankruptcy, come see us at our new office in St. Paul, Minnesota, or come visit us at LifeBackLaw.com!
