Cite as: Keith M. Lundin, Lundin On Chapter 13, § 66.1, at ¶ ____, LundinOnChapter13.com (last visited __________).
Relief from the codebtor stay is motion practice under Bankruptcy Rule 9014. Bankruptcy Rule 4001(a) speaks of “a motion for relief from an automatic stay provided by the Code.” Although there is no reference to § 1301 in Bankruptcy Rule 4001 or in the committee notes, the generic reference to an automatic stay provided by the Code seems to include a motion for relief from the codebtor stay.
The motion should identify the lender, debtor and codebtor, explain the underlying debt transaction and specifically reference which subdivision of 11 U.S.C. § 1301(c) is relied upon for relief.
It may be necessary to join the request for relief from the codebtor stay with a motion for relief from the automatic stay of § 362. For example, if the debtor is obligated with a nondebtor on a consumer debt and if the collateral securing that debt is property of the Chapter 13 estate, to accomplish complete relief, the creditor may need relief from both the § 362 and § 1301 stays. The stringent time periods for court action on a request for relief from the § 362 stay1 do not apply to a request for relief from the codebtor stay, but combining requests for relief from both stays may accelerate relief from the codebtor stay. Various combinations of relief may be appropriate. For example, the creditor may be entitled to relief from the codebtor stay to collect from the cosigner individually and yet not be entitled to relief from the § 362 stay to proceed against the debtor or property of the estate. Joining all stay issues in a single request is tactically desirable for the creditor.
Despite the provision of Bankruptcy Rule 9014 that an answer to a motion is not required, debtor’s counsel should always file a response to a motion for relief from the codebtor stay. A written response may be required by local rule, by court order or by local practice. More importantly, when the request for relief from the codebtor stay arises under 11 U.S.C. § 1301(c)(2), alleging that the plan does not propose to pay the co-signed claim in full, if neither the debtor nor the codebtor files a response within 20 days, relief from the codebtor stay is automatically granted by 11 U.S.C. § 1301(d).2
Practice varies whether the party requesting relief from the codebtor stay should name and serve the Chapter 13 trustee and the codebtor as respondents. Neither Bankruptcy Rule 4001 nor Bankruptcy Rule 9014 provides much guidance. The Chapter 13 trustee does not have any obvious stake in the outcome of a § 1301 stay relief request but may be a source of evidence at any hearing. In some jurisdictions, the Chapter 13 trustee is nominally a respondent in all stay relief requests (under § 1301 and § 362).
The § 1301 stay was not intended by Congress to protect the codebtor from collection actions but was intended to protect Chapter 13 debtors from indirect pressure by creditors with co-signed debts.3 Consistent with that intent, it might be argued that the codebtor does not have standing to object to a request for relief from the codebtor stay and thus would have no right to be named as a respondent or to receive notice of the hearing. However, with the enactment in 1984 of 11 U.S.C. § 1301(d)—the provision for automatic relief if neither the debtor nor “any individual that is liable on such debt with the debtor” files and serves a written objection to a request for relief from the codebtor stay under § 1301(c)(2) within 20 days of the filing of the request—it would seem mandatory that a creditor moving for relief under § 1301(c)(2) name and give notice to the codebtor.4 To avoid due process arguments, creditors are best advised to always name the codebtor as a respondent in a request for relief from the codebtor stay and send notice to the codebtor.
Codebtors should not assume that the debtor will protect their interests. The codebtor should file a written response, particularly if the ground for relief is § 1301(c)(2).
Relief from the codebtor stay is available under § 1301(c) after notice and a hearing. In some courts, requests for relief from the codebtor stay in Chapter 13 cases are lumped with requests for relief from the automatic stay of § 362—even though there are no time constraints under § 1301 similar to the restraints imposed by § 362(e).5 In other jurisdictions, requests for relief from the codebtor stay are scheduled on regular Chapter 13 motion dockets or randomly with other contested matters. In these courts, counsel for the creditor may have to move for an expedited hearing if the codebtor stay threatens immediate or irreparable harm.6
1 See § 80.1 [ Timing, Procedure and Form ] § 63.2 Timing, Procedure and Form.
2 See § 86.2 [ Automatic Relief under § 1301(d) ] § 66.2 Automatic Relief under § 1301(d).
3 See § 84.1 [ Cosigners and Joint Obligors Are Protected ] § 65.1 Cosigners and Joint Obligors Are Protected.
4 See § 86.2 [ Automatic Relief under § 1301(d) ] § 66.2 Automatic Relief under § 1301(d) for discussion of § 1301(d), and § 88.1 [ Plan Does Not Pay Debt in Full ] § 67.2 Plan Does Not Pay Debt in Full for discussion of § 1301(c)(2).
5 See § 80.1 [ Timing, Procedure and Form ] § 63.2 Timing, Procedure and Form.
6 See § 90.1 [ Irreparable Harm ] § 67.5 Irreparable Harm.