The Cosigner Stay: How Filing a Chapter 13 can also Protect the Cosigners on your House, Cars and Other Debts
One of the many invaluable benefits of filing a Chapter 13 bankruptcy is what’s referred to commonly as the “Cosigner Stay”. From my experience, not many of my Chapter 13 clients realize when their case is filed that the cosigners on many of their debts are also protected from creditor collection.
Chapter 13 federal bankruptcy law protects individual cosignors on consumer debts where applicable. So, in the common situation where you have a cosigner on your mortgage, car payment, credit card, and personal loans – the filing of your Chapter 13 bankruptcy often prevents and stops any collection activity by these creditors against your cosigner. The protection begins as soon as the case is filed, and lasts as long as the case is open and running. Cosigner protection will stop however if the bankruptcy court grants relief from the stay.
Two basic requirements must be met for the Cosigner Stay to apply:
First, the “stay”, or protection created by the filing of the Chapter 13 bankruptcy, does not apply to all types of debt. The debt must be what’s called and classified as a “consumer” debt. In all instances, car payments, credit cards, and personal loans fall into this definition and the cosigners on these debts will always be protected. Tax debts and debts for professional services, such as attorney fees are not considered consumer debts and therefore won’t receive Chapter 13 cosigner protection. Depending on where you live (more specifically, what jurisdiction your Chapter 13 is filed in) will determine whether your mortgage debt is considered a “consumer” debt and whether the Cosigner Stay applies.
The second requirement that must be met is that the cosigner must be an “individual”. This simply means businesses or business entities do not qualify for cosigner protection.
Keep in mind that cosigner protection stops and ends if the bankruptcy court, in favor of the creditor, grants relief from the stay, or the Chapter 13 is closed, dismissed, or converted to another bankruptcy chapter. The Cosigner Stay applies only to Chapter 13 bankruptcies and never to Chapter 7 or Chapter 11 bankruptcies.
Click here for more information on the Cosigner Stay or to speak with an experienced bankruptcy attorney.